Standard Costing

The Monroe Corporation manufactures lamps. It has set up the following standards per finished
unit for direct materials and direct manufacturing labor:

 Direct materials: 10 lbs. at Tk.4.50 per lb. Tk.45.00

 Direct manufacturing labor: 0.5 hour at Tk.30 per hour Tk.15.00

The number of finished units budgeted for January 2009 was 10,000; 9,850 units were actually
produced. Actual results in January 2009 were:

 Direct materials: 98,055 lbs. used

 Direct manufacturing labor: 4,900 hours Tk.154,350

Assume that there was no beginning inventory of either direct material of finished units. During
the month, materials purchases amounted to 100,000 lbs, at a total cost of Tk. 465,000. Input
price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of
usage.

Required:

1) Compute the January 2009 price and efficiency variances of direct materials and direct
manufacturing labor.
2) Prepare journal entries to record the variances in requirement-1.
3) Comment on the January 2009 price and efficiency variances of Monroe Corporation.
4) Why might Monroe calculate direct materials price variances and direct materials efficiency
variances with reference to different points in time?

-CMA April-2012
Standard Costing

The Furniture Division of Royal Industries manufactures and sells chairs. The chairs are
manufactured in two versions a metal model and a plastic model. The chairs are manufactured
on two different assembly lines located in adjoining buildings. The actual sales and CM ratio for
actual mix for the first three months of the fiscal year as compared to the budget are presented
below.

Actual Budget
 Sale in units:
 Plastic model 60,000 50,000
 Metal model 20,000 25,000
 Sales revenue:
 Plastic model Tk. 630,000 Tk.500,000
 Metal model Tk. 300,000 Tk.375,000
 Total sales Tk. 930,000 Tk. 875,000
 CM ratio:
 Actual mix .1844
 Budgeted mix .1971

The manufacturing activities for the quarter resulted in the production of 55,000 plastic chairs
and 22,500 metal chairs. The actual costs incurred by each manufacturing unit are presented
below.

Plastic Model Metal Model

 Raw materials (stated in equivalent finished chairs):
 Purchases:
o Plastic 60,000 lbs@ Tk.5.65 Tk.339,000
o Metal 30,000 feet @ Tk.6.00 Tk.180,000
 Usage:
o Plastic 56,000 lbs
o Metal 23,000 feet
 Direct labor:
o 9,300 hours @ Tk.6.00 per hour Tk. 55,800
o 5,600 hours @ Tk.8.00 per hour Tk. 44,800
 Manufacturing overhead:
o Variable Tk.112,000 Tk. 55,000
o Fixed Tk. 27,900 Tk. 21,300

1
The standard variable manufacturing costs per unit and the budgeted monthly fixed
manufacturing costs established for the current year are presented below:

Plastic Model Metal Model

 Raw materials:
o Plastic 1 lb @ Tk.5.00 Tk.5.00
o Metal 1 foot @ Tk.6.00 Tk.6.00
 Direct labor:
o 1/6 hour @ Tk. 6.00 per DLH Tk.1.00
o 1/4 hour @ Tk. 8.00per DLH Tk.2.00
 Variable manufacturing overhead:
o 1/6 hour @ Tk.12.00 per DLH Tk. 2.00
o 1/4 hour @ Tk.8.00 per DLH Tk. 2.00
 Standard variable manufacturing cost per unit Tk. 8.00 Tk. 10.00
 Budgeted fixed costs per month Tk.9,100 Tk.6,900

Required:

(a) Calculate:
(i) Sales price variance;
(ii) Sales mix variance;
(iii)Sales volume variance.
(b) Analyze the variances of variable manufacturing costs in as much detail as the data permit.

-CMA August-2012

2
Standard Costing

Reebok manufactures cricket bats using high quality wood and skilled labour using mainly
traditional manual techniques. The manufacturing department is a cost centre within the business
and operates a standard costing system based on marginal costs.

At the beginning of April 2012 the production director attempted to reduce the cost of the bats by
sourcing wood from a new supplier and de-skilling the process a little by using lower grade
staff on parts of the production process. The standards were not adjusted to reflect these changes.
The variance report for April 2010 is shown below (extract).

Adverse Favorable
 Variances: Tk. Tk.
 Material price - 5,100
 Material usage 7,500 -
 Labour rate - 43,600
 Labour efficiency 48,800 -
 Labour idle time 5,400 -

The production director pointed out in his April 2012 board report that the new grade of labour
required significant training in April and this meant that productive time was lower than usual.
He accepted that the workers were a little slow at the moment but expected that an
improvement would be seen in May 2010. He also mentioned that the new wood being used was
proving difficult to cut cleanly resulting in increased waste levels. Sales for April 2012 were
down 10% on budget and returns of faulty bats were up 20% on the previous month.

The sales director resigned after the board meeting stating that Reebok had always produced
quality products but the new strategy was bound to upset customers and damage the brand of the
business.

Required:

Assess the performance of the production director using all the information above taking into
account both the decision to use a new supplier and the decision to de-skill the process.

-CMA December-2012
Standard Costing

In May 2012 the budgeted sales were 19,000 bats and the standard cost card is as follows:

Std. Cost Std. Cost

Tk. Tk.
 Materials (2kg at Tk. 5/kg) 10 -
 Labour (3hrs at Tk. 12/hr) 36 -
 Marginal cost 46
 Selling price 68
 Contribution 22

In May 2012 the following results were achieved:

40,000kg of wood were bought at a cost of Tk. 196,000, this produced 19,200 cricket bats. No
inventory of raw materials is held. The labour was paid for 62,000 hours and the total cost was
Tk. 694,000. Labour worked for 61,500 hours.

The sales price was reduced to protect the sales levels. However, only 18,000 cricket bats were
sold at an average price of Tk. 65.

Required:

Calculate the materials, labor and sales variances for May 2012 in as much detail as the
information allows. You are not required to comment on the performance of the business.

-CMA December-2012