PAM3033 MANAGEMENT ACCOUNTING II

CHAPTER 3: STANDARD COSTING AND VARIANCE ANALYSIS

Amber Sdn Bhd manufactures a single product known as XY. The product requires a single operation and the standard cost
for this operation is given in a standard cost card below:

Standard cost card for XY

Direct materials: RM
2 kg of A at RM1.00 per kg 2.00
1 kg of B at RM3.00 per kg 3.00
Direct labour (3 hours at RM3.00 per hour) 9.00
Variable overhead (3 hours at RM2.00 per DLH) 6.00
Total standard variable cost 20.00
Standard contribution margin 20.00
Standard selling price 40.00

Amber plans to produce 10,000 units of XY in April and the budgeted costs based on the information contained in the standard
cost card as follows:

RM RM RM
Sales 400,00.00
Direct materials:
A (20,000 kg at RM1.00 per kg) 20,000.00
B (10,000 kg at RM3.00 per kg) 30,000.00 50,000.00
Direct labour 90,000.00
(30,000 hours at RM3.00 per hour)
Variable overheads
(30,000 hours at RM2.00 per DLH) 60,000.00 200,000.00
Budgeted contribution 200,000.00
Fixed overheads 120,000.00
Budgeted profit 80,000.00

Annual budgeted fixed overheads are RM1,440,000.00 and are assumed to be incurred evenly throughout the year. Amber
uses a variable costing system for internal profit measurement purposes.

The actual results for April were:

RM RM
Sales (9,000 units at RM42.00) 378,000.00
Direct materials:
A (19,000 kg at RM1.10 per kg) 20,900.00
B (10,100 kg at RM2.80 per kg) 28,280.00
Direct labour (28,500 hours at RM3.20 per hour) 91,200.00
Variable overheads 52,000.00 192,380.00
Contribution margin 185,620.00
Fixed overheads 116,000.00
Profit 69,620.00

Manufacturing overheads are charged to production on the basis of direct labour hours. Actual production and sales for the
period were 9,000 units.

Required:

(a) Prepare all relevant variances

(b) Prepare an operating statement which reconciles the actual with the budgeted profits