Malcolm Reynolds makes and sells a single product, Product Q, with the following standard specification for materials:

It takes 20 direct labour hours to produce one unit with a standard direct labour cost of $10 per hour.

The annual sales/production budget is 2,400 units evenly spreadthroughout the year. The standard selling price was $1,250 per unit.

The budgeted production overhead, all fixed, is $288,000 andexpenditure is expected to occur evenly over the year, which the companydivides into 12 calendar months. Absorption is based on direct labourhours.

For the month of October the following actual information is provided.

Costs of opening inventory, for each material, were at the sameprice per kilogram as the purchases made during the month but there hadbeen changes in the materials inventory levels, viz.:

Material X purchases were 3,000 kg at $42 each.

Material Y purchases were 1,700 kg at $30 each

The number of direct labour hours worked was 4,600 and the total wages incurred $45,400.

Work-in-progress and finished goods inventories may be assumed to be the same at the beginning and end of October

Required:

(a) to present a standard product cost for oneunit of product Q showing the standard selling price and standard grossprofit per unit

(3 marks)

(b) to calculate appropriate variances for thematerials, labour, fixed production overhead and sales, noting that itis company policy to calculate material price variances at time of issueto production (i.e. based on usage not purchases)and that the firm doesnot calculate mix and yield variances

(12 marks)

(c) to present a statement for management reconciling the budgeted gross profit with the actual gross profit
 
 

Transcribed Image Text:

Quantity Price per kg kg $ Direct material X Direct material Y 12 8 40 40 32 Quantity Price per kg kg $ Direct material X Direct material Y 12 8 40 40 32

Answer rating: 100% (QA)

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