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    Question 1-Standard Costing

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    Grechen Udigeng
    The financial director reported quarterly results that exceeded budget expectations for sales and profit. However, the managing director is confused because costs increased disproportionately to sales. An investigation found the company uses variable costing, with a standard cost per unit of N$7 for materials and N$5 for labor. Variances were calculated for sales (favorable), materials (unfavorable), labor (favorable), and overhead (favorable). The actual profit matched the reconciled profit. Possible reasons for variances included higher production and lower labor hours. The existing variable costing system is useful but could be improved with better variance analysis.

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    Question 1-Standard Costing

    Uploaded by

    Grechen Udigeng
    30 views2 pages
    The financial director reported quarterly results that exceeded budget expectations for sales and profit. However, the managing director is confused because costs increased disproportionately to sales. An investigation found the company uses variable costing, with a standard cost per unit of N$7 for materials and N$5 for labor. Variances were calculated for sales (favorable), materials (unfavorable), labor (favorable), and overhead (favorable). The actual profit matched the reconciled profit. Possible reasons for variances included higher production and lower labor hours. The existing variable costing system is useful but could be improved with better variance analysis.

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    Question 1-Standard costing(2)

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    The financial director reported quarterly results that exceeded budget expectations for sales and profit. However, the managing director is confused because costs increased disproportionately to sales. An investigation found the company uses variable costing, with a standard cost per unit of N$7 for materials and N$5 for labor. Variances were calculated for sales (favorable), materials (unfavorable), labor (favorable), and overhead (favorable). The actual profit matched the reconciled profit. Possible reasons for variances included higher production and lower labor hours. The existing variable costing system is useful but could be improved with better variance analysis.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    30 views2 pages

    Question 1-Standard Costing

    Uploaded by

    Grechen Udigeng
    The financial director reported quarterly results that exceeded budget expectations for sales and profit. However, the managing director is confused because costs increased disproportionately to sales. An investigation found the company uses variable costing, with a standard cost per unit of N$7 for materials and N$5 for labor. Variances were calculated for sales (favorable), materials (unfavorable), labor (favorable), and overhead (favorable). The actual profit matched the reconciled profit. Possible reasons for variances included higher production and lower labor hours. The existing variable costing system is useful but could be improved with better variance analysis.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Question 1 50 marks

    Taku-Tau (Pty) Ltd manufactures one type of sensor-activated security light. The
    Managing Director has been presented with the following memo:
    To : Managing Director (Mrs. Shitapata)
    From : Financial Director (Mr. Walilato)
    Date : 20 September 2014
    Re : Second Quarter Results
    Attached please find the above for your information. I’m pleased to report that both
    sales and profit have exceeded budget expectations.
    BUDGET ACTUAL VARIANCE
    N$ N$ N$ N$ N$ N$
    000 000 000 000 000 000
    Sales 3 000 3 190 +190
    Production Costs:
    Direct Materials 1 400 1 800 -400
    Direct Labour 600 700 -100
    Overheads Costs:
    Fixed 600 650 -50
    Variable 100 100 0
    Add: Opening stock 405 405 0
    Less: Closing stock -405 -810 405
    Cost of goods sold 2 700 2 845 -145
    Profit 300 345 +45

    The managing Director is confused by the results, because in her words, “although
    there is an increase in sales, all other costs have increased out of proportion to the
    sales increase, yet we show an increase in profit."
    Consequently, she asked you to undertake an investigation of the figures and
    present a more meaningful analysis to her.
    The following data is also relevant: -
    BUDGET ACTUAL
    Opening stock – Units 3 000 3 000
    Production – Units 20 000 25 000
    Sales – Units 20 000 22 000
    Raw material per unit 7 kg 8 kg
    Labour per unit 5 hours 4 hours

    Variable costs are incurred on the basis of units produced. There were no stocks of
    raw materials or work-in-progress at the end of the period under review.

    Required:
    1. Determined whether the company uses a standard variable costing system or
    a standard absorption costing system based on the budget information. In
    your answer show the standard product cost for one unit. (5 marks)
    2. Calculate the appropriate variance for sales, materials, labour and overheads
    in as much detail as possible. (20 marks)
    3. Present a statement for the Managing Director reconciling the budgeted profit
    with the actual profit. (5 marks)
    4. Suggest possible reasons for variances you have calculated in sales, direct
    material and direct labour. (10 marks)
    5. Comment on the usefulness of the existing method for the decision making
    and make some suggestion on how it could be improved. (10 marks)

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