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ACCA · Question 37 · Standard Costing

SECTION B - MULTI-TASK QUESTION 2 (STANDARD COSTING)

A biotech firm uses standard costing for its main chemical compound.
Standard data per liter of output:

  • Material: 2 kg at $10 per kg = $20
  • Labor: 0.5 hours at $30 per hour = $15

Actual data for the period:

  • Output produced: 5,000 liters
  • Material purchased and used: 10,500 kg at a total cost of $102,900
  • Labor worked: 2,600 hours at a total cost of $79,300

Provide the following 5 answers (each worth 2 marks). State 'A' for Adverse or 'F' for Favorable:

  1. Calculate the material price variance.
  2. Calculate the material usage variance.
  3. Calculate the total material variance.
  4. Calculate the labor rate variance.
  5. Calculate the labor efficiency variance.

How to approach this question

Apply standard variance formulas: Price = (Std Price - Act Price) * Act Qty. Usage = (Std Qty - Act Qty) * Std Price. Rate = (Std Rate - Act Rate) * Act Hours. Efficiency = (Std Hours - Act Hours) * Std Rate.

Full Answer

1. Material Price Variance: Standard cost of actual quantity = 10,500 kg × $10 = $105,000. Actual cost = $102,900. Variance = $2,100 Favorable. 2. Material Usage Variance: Standard quantity for 5,000 liters = 10,000 kg. Actual quantity = 10,500 kg. Difference = 500 kg Adverse. Variance = 500 kg × $10 = $5,000 Adverse. 3. Total Material Variance = $2,100 F + $5,000 A = $2,900 Adverse. 4. Labor Rate Variance: Standard cost of actual hours = 2,600 hours × $30 = $78,000. Actual cost = $79,300. Variance = $1,300 Adverse. 5. Labor Efficiency Variance: Standard hours for 5,000 liters = 2,500 hours. Actual hours = 2,600 hours. Difference = 100 hours Adverse. Variance = 100 hours × $30 = $3,000 Adverse.

Common mistakes

Forgetting to state A or F, or calculating variances based on budgeted output instead of actual output.
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