Question4 A company manufactures and sells a single product

Question4 A company manufactures and sells a single product. The company operates a standard marginal costing system that enables the reporting of planning and operational variances. Initially, the company had, as its normal practice, prepared standard estimates for selling price, direct materials quantity needed and direct materials price, direct labour hours needed and direct labour rate. However, it was later found that two revisions were needed for the original estimates made. First, a change in the product specification was implemented at the start of May which required additional material for each unit. Second, the labour rate set carlier was found to be over-estimated. The company uses a system which distinguishes between planning variances to monitor the differences between original standard amounts and revised standard amounts, and the usual operational variances which look at differences between standard amounts and actual amounts. After the two revisions had been made, the following table shows the standard unit contribution margin for the month: RM 60 Selling price Less: variable costs Direct material 1.5 kg @RM 10 per kg Direct labour 2 hours @ RM 14.60 per hour (15.00) (29.20) -(44.20.- 15.80 Contribution margin per unit Other information for May 2017: Sales and production quantities: Budgeted sales and production Actual sales and production 40,000 units 42,000 units *Actual direct material purchased and used was 78,000 kg at RM 9.90 per kg. * The actual rate paid for direct labour was RM 15.20 per hour and actual hours worked were 86,000 hours. \" The actual selling price per unit was RM 62. \"There was no opening inventory of raw materials or finished goods. Required: a) Calculate the actual contribution for the month of May 2017. (3 marks) b) Compute the following operational variances: i. Sales price varianoe ii. Materials price variance ii. Materials usage variance v.Labour rate variance . Labour efficiency variance (11 marks) e) Discuss the performance of the company for May. Your discussion should include ONE (5 marks) d) Explain why separating variances into their planning and operational elements should 6 marks) Total: 25 marks] possible reason for each of the operational variances calculated in part (b).

Solution

RM RM RM Contribit Selling price 60 2604000 Less: Variable costs      Direct material 1.5 kg @ RM 10 per KG               (15) -772200 Direct labour 2 hours @RM14.60 per hour -29.2 44.2 -1307200 -2079400 Contribute margin per unit 15.8 524600 Other information for may 2017 Sales and production quantities Budgeted sales and production 40,000 Units Actual sales and prodcution 42,000 units Direct material purchased and used 78000KG RM9.9    78000*9.9 Direct labour 86000 hours RM 15.20    86000*15.20 Sales price variance Standard sales Budgeted units 40,000 units     =40000*60 sell price RM60 2400000 Actual      = 42000*62 2604000 OprationalVariance     =2400000-2604000 204000 Budgeted Material price variance ` Standard Material Price   Standard material 1.5 kg per unit     =40000*1.5Kg Material price RM10 per kg =40,000*1.5Kg*10 RM 600000 Actual 772200 OprationalVariance 172200 Budgete Material usage variance Standard Material usage Standard material 1.5 kg per unit     =40000*1.5Kg Material price 60000 60000KG Actual 78000Kg OprationalVariance 18000 Budget labour rate variance Standard labour l Price   Standard material 2 Hours per unit     =40000*2 hours Material price RM 14.60 per hour     =80000*14.6 RM 1168000 Actual 1307200 OprationalVariance 139200 Budget Labour efficincy Standard labour hours Standard material 2 Hours per unit     =40000*2 hours Hours 80000 Actual Hours 86000 OprationalVariance 6000 Budget