EXERCISE 2

TOPIC 3
STANDARD COSTING AND VARIANCE ANALYSIS 1

1. Alex Company (AC), produces and sells one product only. The standard cost and
price for one unit being as follows:

RM

Direct material A (20kg @ RM12 per kg) 240

Direct material B (12kg @ RM5 per kg) 60
Direct wages (10 hours @ RM8 per hour) 80
Fixed overhead 120
Total standard cost 500
Standard margin 100
Standard selling price 600

The fixed overhead included in the standard cost because AC uses an absorption costing
system. AC plans to produce 750 units. Total budgeted fixed overhead is RM84,000 and
total budgeted profit is RM75,000.

During October the actual results were as follows:

RM

Sales (700 units @ RM640) 448,000

Direct material A (15,000kg) 183,000
Direct material B (7,000kg) 40,600
Direct wages (6,800 hours) 55,760
Fixed overheads 74,000
Profit 94,640

Required:

(a) Using the above information, calculate,

(i) direct material price variance.

(2 marks)

(ii) direct material usage variance.

(2 marks)

(iii) direct wages rate variance.

(2 marks)

1
 (iv) labour efficiency variance.
(2 marks)
(v) fixed overhead expenditure.
(2 marks)
(vi) sales margin price variance.
(2 marks)
(vii) sales margin volume variance.
(2 marks)

(b) Prepare a statement that reconciles the budgeted profit with the actual
profit for October. Your statement should show the variances in as much
detail as possible, and in total.
(4 marks)