Question 5

	$
Direct materials (0.5 kg @ Rs. 4 per kg)	1.00
Direct labour (2 hours @ Rs. 2.00 per hour)	2.00
Variable production overheads (2 hours @ Rs. 0.30 per hour)	0.30
Fixed production overheads (2 hours @ Rs. 3.70 per hour)	3.70
Standard Cost	7.00
Standard Profit	3.00

One product is being produced and sold. There are no opening and closing stock. Budgeted production is 2,550 units.

Actual results are as follows:

• Production of 2,425 units were sold for $ 47,500.
• Materials used in production were 1,150 kgs at cost $ 4,900.
• Labour hours worked were 4,250 hours costing $ 8,400.
• Variable overheads amounted to $ 1,300.
• Fixed overheads amounted to $ 21,150

1. Calculate the following:

• Sales volume and price variances. (3 marks)
• Material price and usage variances (3 marks)
• Labour rate and efficiency variances (3 marks)
• Variable overhead expenditure and efficiency variances (3 marks)
• Fixed overhead expenditure, volume and efficiency variances (3 marks)
• The Standard Cost and Actual Cost of producing 4,850 units. (1 mark)

1. Why is a favorable labour and material variance not always desirable? (2 marks)
2. What are the benefits of a standard costing system? (2 marks)