Costing case study pp
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The document calculates material price, usage, and total variances as well as labor rate, efficiency, and total variances for products SLIM and SMART. For SLIM, the material price and usage variances were favorable due to decreased price and more efficient production methods. However, the labor rate and efficiency variances were unfavorable possibly because standards were too loose or equipment was inefficient. For SMART, the material usage and total variances were favorable likely due to machinery issues while the price and labor rate variances were unfavorable possibly from incorrect standards or changed rates.
Costing case study pp
- 2. QUESTIONS a) Calculate the following variances for product SLIM and SMART : i. Material Price Variance ii. Material Usage Variance iii. Total Material Variance iv. Labour Rate Variance v. Labour Efficiency Variance vi. Total Labour Variance
- 3. SLIM Material Price Variance MPV = ( AP - SP ) x AQ = ( RM 4.90 – RM 5.00 ) X 8,200 kg = RM 820 (F) Material Usage Variance MUV = ( AQ - SQ ) X SP = ( 7,380 kg – 7,800 kg) X RM 5.00 = RM 2,100 (F) Total Material Variance MCV = MPV + MUV = RM 820 ( F ) + RM 2,100 ( F ) = RM 2,920 (F)
- 4. SLIM Labour Rate Variance LRV = ( AR – SR ) X AH = ( RM 7.20 – RM7.00 ) X 12,300 hours = RM 2,460 (UF) Labour Efficiency Variance LEV = ( AH – SH ) x SR = ( 12,300 hours - 11,700 hours) X RM 7 = RM 4,200 (UF) Total Labour Variance LCV = LRV + LEV = RM 2,460 (UF) + RM 4,200 (UF) = RM 6,660 (UF)
- 5. SMART • Material Price Variance MPV = ( AP - SP ) X AQ = ( RM 6.50 – RM 6.00 ) X 10,000 kg = RM 5,000 (UF) • Material Usage Variance MUV = ( AQ - SQ ) X SP = ( 9,000 kg – 16,650 kg ) X RM 6.00 = RM 45,900 (F) • Total Material Variance MCV = MPV + MUV = RM 5,000 (UF) + RM 45,900 (F) = RM 40,900 (F)
- 6. SMART • Labour Rate Variance LRV = ( AR – SR ) X AH = ( RM 8.00 – RM7.50 ) X 13,500 hours = RM 6,750 (UF) • Labour Efficiency Variance LEV = ( AH – SH ) X SR = ( 13,500 hours - 19,425 hours ) X RM 7.50 = RM 44,437.50 (F) • Total Labour Variance LCV = LRV + LEV = RM 6,750 (UF) + RM 44,437.50 (F) = RM 37,687.50 (F)
- 7. QUESTIONS b) State TWO (2) possible reasons for each of the Favourable (F) or Unfavourable (UF) variances above.
- 8. SLIM Material Price Variance (MPV) : Favourable (F) 1. Decrease in price 2. Inefficient buying Material Usage Variance (MUV) : Favourable (F) 1. Method of production 2. Handling in material Total Material Variance (MCV) : Favourable (F) 1. Decrease in price 2. Method of production
- 9. SLIM Labour Rate Variance (LRV) : Unfavourable (UF) 1. Paying workers at a lower rate (in standard rate) 2. Working overtime Labour Efficiency Variance (LEV) : Unfavourable (UF) 1. Standard sets too loose 2. Inefficient equipments Total Labour Variance (LCV) : Unfavourable (UF) 1. Working overtime 2. Standard sets too loose
- 10. SMART Material Price Variance (MPV) : Unfavourable (UF) 1) Standard price set was too low 2) Increase in price Material Usage Variance (MUV) : Favourable (F) 1) Condition of machinery 2) Nature of material Total Material Variance (MCV) : Favourable (F) 1) Condition of machinery 2) Nature of material
- 11. SMART Labour Rate Variance (LRV) : Unfavourable (UF) 1. Time taken for the work 2. Change in rate Labour Efficiency Variance (LEV) : Favourable (F) 1. Standard sets too tight 2. Lost time due to machine brokedown Total Labour Variance (LCV) : Favourable (F) 1. Standard sets too tight 2. Lost time due to machine brokedown
- 12. Thank you