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Lesson Mock 04: Specimen Answer Standard Costing
01. (a) The average variable cost per unit falls as volume increases from 5,000 to 15,000 units and then increases as volume increases to 30,000 units. The average material costs may initially fall because of economies of scale due to bulk discounts, but then may rise if there is scarcity of supply, requiring a premium to be paid.
The product-specific fixed costs are constant until the volume increases from 10,000 to 15,000 units, and then a stepped function occurs. This is repeated when volume increases from 20,000 to 25,000 units. This may be the result of production capacity being reached and further production requiring the purchase (or lease) of additional machinery and/or factory space.
The apportioned head office costs are at the rate of £60 per unit, at all levels of output. This indicates a company policy of apportioning such costs on a product unit basis. (b)
Direct materials Direct labour Fixed overheads Total 6kg 2.5 hours Standard cost per unit $ @$2 per kg 12 @$8 per 20 hour 8 40
Reconciliation statement Standard cost of 76,000 units Cost variances Materials price Materials usage Labour rate Labour efficiency Fixed overhead expenditure Fixed overhead volume Actual cost
$ 3,040,000 Adverse 64,500 58,800 48,000 50,000 32,000 203,300 102,000 101,300 3,141,300 Favorable 52,000
1
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(c) Planning variance = (2·00-2·10) 6 x 76,000 = $45,600 adverse Operational price variance = (2·10 - 924,500/430,000) 430,000 = $21,500 adverse
Operational usage variance = (76,000 x 6 - 430,000) 2·10 = $54,600 favourable
2
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02. Unlike the interpretation of variance question we did in the class where we were force to look at all general reasons, this question contains specific reasons; as many as seven in the given scenario, viz. 1. Operation manager having too many responsibilities 2. No. of different suppliers 3. High
Lesson Mock 04: Specimen Answer Standard Costing
01. (a) The average variable cost per unit falls as volume increases from 5,000 to 15,000 units and then increases as volume increases to 30,000 units. The average material costs may initially fall because of economies of scale due to bulk discounts, but then may rise if there is scarcity of supply, requiring a premium to be paid.
The product-specific fixed costs are constant until the volume increases from 10,000 to 15,000 units, and then a stepped function occurs. This is repeated when volume increases from 20,000 to 25,000 units. This may be the result of production capacity being reached and further production requiring the purchase (or lease) of additional machinery and/or factory space.
The apportioned head office costs are at the rate of £60 per unit, at all levels of output. This indicates a company policy of apportioning such costs on a product unit basis. (b)
Direct materials Direct labour Fixed overheads Total 6kg 2.5 hours Standard cost per unit $ @$2 per kg 12 @$8 per 20 hour 8 40
Reconciliation statement Standard cost of 76,000 units Cost variances Materials price Materials usage Labour rate Labour efficiency Fixed overhead expenditure Fixed overhead volume Actual cost
$ 3,040,000 Adverse 64,500 58,800 48,000 50,000 32,000 203,300 102,000 101,300 3,141,300 Favorable 52,000
1
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(c) Planning variance = (2·00-2·10) 6 x 76,000 = $45,600 adverse Operational price variance = (2·10 - 924,500/430,000) 430,000 = $21,500 adverse
Operational usage variance = (76,000 x 6 - 430,000) 2·10 = $54,600 favourable
2
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02. Unlike the interpretation of variance question we did in the class where we were force to look at all general reasons, this question contains specific reasons; as many as seven in the given scenario, viz. 1. Operation manager having too many responsibilities 2. No. of different suppliers 3. High