Standard Costing Questions

Apt Financial Consultants CPA Review
STANDARD COSTING
QUESTIONS
1. (a) Briefly explain the term “Standard Costing.”
(b) Outline the benefits, which a company may obtain from a

standard costing system
(c) Discuss the problems that may arise in the development and
operation of a standard costing system.
2. Sm Manufacturing Company manufactures a uniform product and

operates a standard costing system. The standard cost data are as
follows:
For each ton of raw material consumed it is planned that 40 units
will be produced, the standard price is shs 10,000.
Twenty employees are at standard rate of shs 1,250 per hour. A
40 hour week is in operation and there 48 working weeks per
annum. The standard performance for the whole factory is set at a
total of 50 units per hour.
Budgeted production overhead for the year is shs 28,800,000.
Budgeted output for the year is 96,000 units
Actual data for the first week of May were as follows:
Production was 2,020 units. Consumption of raw material was 52
tons at actual price of shs 9,800.
Three employees were paid shs 1,350 per hour and two were paid
at shs 1,200 per hour and the remainder at standard rate.
Actual production overhead incurred was shs 620,000.
You are required to calculate the following variances:

(i) Direct material cost
(ii) Direct material price
(iii) Direct material usage
(iv) Direct wage cost
(v) Direct wage rate
(vi) Direct labour efficiency
(vii) Production overhead cost
(viii) Production overhead expenditure
(ix) Production overhead volume.
1
3. The Accountant of the Company has presented the following

operating statement for the General Manager of the Department for
the month of May.
Budget Actual Variance

May 2004
Shs shs shs
Sales 2,400,000 2,200,000 200,000
Direct materials 600,000 520,000 80,000
Direct labour 800,000 756,000 44,000
Factory overhead (v) 200,000 184,000 16,000
Factory overhead (F) 100,000 116,000 (16,000)
Selling overhead (V) 300,000 288,000 12,000
Selling overhead (F) 200,000 184,000 16,000
Total 2,200,000 2,046,000 152,000
Profit 200,000 152,000 (48,000)
Direct labour hours 100,000 95,000
Units of production and sale 20,000 18,000
The General Manager was surprised to see that his operations have
resulted in adverse profit variance of shs 48,000 for the month. On the
basis of the budgeted profit of shs 10 per unit, he expected that he would
make a profit of shs 180,000 on a sale of 18,000 units of production in
may 2004 instead of the budgeted profit of shs 200,000 resulting in an
adverse profit of shs 20,000 only.
You are required to:

(i) Redraft the above statement to show the original
budget, flexible budget, actual expenses incurred and
variations for May 2004.
(ii) Calculate all variances relating to sales, direct
materials, direct labour and overheads.
4. Mwanachi Limited manufactures a special machine part as a sub-

contractor. The management of the company is cost-conscious
and has a standard costing system in order to closely monitor
costs. For 1999, the plans for the production and costs were as
follows:
2
Units produced 2,500

Shs
Standard cost per unit:
Direct materials 1,000
Direct labour 800
Variable overhead 400
Fixed overhead 300
During the year, 3,000 units were produced and sold: The following
actual costs were incurred:
Direct materials shs 3,200,000

Direct labour 2,200,000
Variable overhead 1,250,000
Fixed overhead 890,000
There were no beginning or ending inventories of raw materials.

Upon investigation, was discovered that in producing the 3,000 units,
39,000 direct labour hours were spent. This was 4% more than the
standard allowed for the actual output.
There was a direct material price variance of shs 50,000 Unfavorable.
The overhead costs are applied to production using direct labour hours.
Required
(a) Prepare a Production Cost Performance Report showing the
variances based on a Flexible Budget for the actual units
produced.
(b) Show the calculation for the following:-
(i) Direct material usage variance
(ii) Direct labour rate variance
(iii) Direct labour efficiency (usage) variance
(iv) Variable overhead efficiency variance
(v) Fixed overhead volume variance.
5. Mtambo Company uses a standard costing system. The standard

cost card for one of its products shows the following material
standards:
Material kilograms Standard price (shs)

Amount
A 20 70 shs 1,400
B 5 40 200
C 25 20 500
3
Total material cost per unit 2,100
The standard kilograms mix cost shs 42 (shs 2,100/50kg). The

standard mix should produce 40 kilograms of finished product,
and the standard cost of finished product per kilogrm is shs 52.50
(shs 2,100/40kgs).
Direct materials of shs 500,000 kilograms were used as follows:
Direct material
A 230,000 kg @ shs 80
B 50,000 Kg @ shs 35
C 220,000 kg @ shs 25
The output for finished output was 390,000 kilograms.
Required:
Product analysis showing price, mix and yield variances.
6. TP Manufacturing Company has a process cost accounting system.

Analysis that compares the actual results with both a monthly
plan and flexible budget is prepared monthly. The Standard direct
labour our rates used on a flexible are established each year at the
time the annual plan is formulated and held constant for the
entire year.
The standard direct labor hour rates in effective for the fiscal year
ending 30th June 2003 and the standard hours allowed for the
output for the month of April are shown in the following
schedule:-
Standard labour standard direct

Labour rate per hour labour hours
Allowed per
Output
Labour class III 500 shs 8.00
Labour class II 500 7.00
Labour class I 500 5.00
The wage rate for each labor class increased on 1 st January 2003
under the terms of new union contract negotiated in December
2002. Standard wage rate rates were not revised to reflect new
contract. The actual labour hours (DLH) worked and the actual
direct rates per hour experienced for the month of April were as
follows:-
Actual direct actual direct
4
Labour rates labour

hours
Per hour
Labour class III shs 8.50 550
Labour class II 7.50 650
Labour class I 5.40 375
Required:
(a) Calculate the shilling amount of the total direct labour
variances for the month of April for the TP Manufacturing
Company and analyses the total variance into the following
components:-
(i) Direct labour price variance
(ii) Direct labour efficiency variance
(iii) Direct labour mix and yield variances.
(b) Discuss the advantages and disadvantages of standard

costing system in which the direct labor rates per hour are
not changed during the year to reflect such events as new
labour contract.
7. EBWELE limited manufactures a standard product and the

following report has been prepared in respect of a recent month.
Budget Actual Variance
Sales and production (units) 4,000 3,800
Direct material consumed 24,000 21,500
Direct labour hours 10,000 9,800
Tshs Tshs Tshs

Sales 136,000,000 125,000,000 (11,000,000)
Direct wages 40,000,000 41,000,000 (1,000,000)
Direct material 48,000,000 46,000,000 2,000,000
Variable overhead 20,000,000 18,000,000 2,000,000
Fixed overhead 12,000,000 11,500,000 500,000
120,000,000 116,500,000 3,500,000
Net Profit (Loss) 16,000,000 8,500,000 7,500,000
Variable overheads are applied at a rate per direct labour hour. Shs 200
increased the direct labour hour rate per hour from the beginning of the
month; the market price of direct material was shs 2,100 per kilogram
during the month. The budget figures were not adjusted in respect of
any changes arising from these factors.
The Company uses variable costing method
5
Required
(a) Comment on the report and any limitation you consider it may
have.
(b) Using the information provided, prepare a detailed analysis of
the sales and cost variances for the period and a statement of
reconciling the budgeted profit and actual profit figures. Your
analysis should distinguish between planning and operating
variances.

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Apt Financial Consultants CPA Review

1. (a) Briefly explain the term “Standard Costing.”

(b) Outline the benefits, which a company may obtain from a

2. Sm Manufacturing Company manufactures a uniform product and

You are required to calculate the following variances:

3. The Accountant of the Company has presented the following

Budget Actual Variance

You are required to:

4. Mwanachi Limited manufactures a special machine part as a sub-

Units produced 2,500

Direct materials shs 3,200,000

There were no beginning or ending inventories of raw materials.

5. Mtambo Company uses a standard costing system. The standard

Material kilograms Standard price (shs)

Total material cost per unit 2,100

The standard kilograms mix cost shs 42 (shs 2,100/50kg). The

The output for finished output was 390,000 kilograms.

6. TP Manufacturing Company has a process cost accounting system.

Standard labour standard direct

Actual direct actual direct

Labour rates labour

(b) Discuss the advantages and disadvantages of standard

7. EBWELE limited manufactures a standard product and the

Tshs Tshs Tshs

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