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Standard Costing_Two Questions on Variances




Question;Question 1 (15 marks);Penray uses a;standard costing system in evaluating production operations.The company has;had a number of problems with suppliers and employees in recent times so they;hired a new production supervisor, David Smith. David Smith has been working;for the company for three months now and the employees appear much happier with;the company.;The director of;manufacturing commented that employees appear happier after Smith had been;there for the last three months and with the changes in suppliers of material;and various morale boosting activities the overall total labour and material;variances being low he seemed to have transformed the company and to have;considerably improved its performance from a company which has always struggled;to achieve its cost targets and achieve positive material and labour variances.;The following;additional information is provided;- The company;purchased and consumed 90,000 kilograms of direct materials;at $7.90 per;kilogram and paid $15.50 per hour for 42,000 direct labour hours;- Total units;produced were 19,200;-The company?s;standard costs show that each completed unit required 4.4 kilograms of direct materials at $8.50 per kilogram;and 2.5 direct labour hours at $14;per hour.;Required;1. Calculate the;direct material and the direct labour variances.;2. Based on your;answer to part 1 should the management of Penray be concerned about its variances? Explain why.;3. Are things going;as smoothly as the director of manufacturing believes?;Evaluate the;company?s variances and determine whether or not the changes;in suppliers and;the morale boosting activities appear to be working. Explain;why.;Question 2(10 marks);The accountant for;Daily Manufacturing compares each month?s actual results with the monthly;budget. The standard direct labour rates and the standard hours allowed based;on expected labour output are as follows;Standard;direct labour rate Standard;direct labour hours;per;hour allowed;Labour class 3 $25 2000;Labour class 2 $22 2000;Labour class1 $16 2000;A new union;contract negotiated in March resulted in actual wage rates that were different;from the standard rates. The actual wage rates paid and theactual direct labour hours;worked for April were as follows;Actual direct labour rate Actual direct labour hours;per;hour;Labour class 3 $26.20 2100;Labour class 2 $23.80 2350;Labour class 3 $16.80 1900;Required;1. Calculate the;following variances for April indicating whether each is favourable or unfavourable;(a);Direct labour rate variance for each labour class;(b);Direct labour efficiency variance for each labour class;2. Discuss the;advantages and disadvantages of a standard costing system in which the standard direct labour rates per;hour are not changed during the year to reflect events such as a new labour;contract.;3. Construct an;Excel or other spreadsheet to demonstrate how the solution to part 1 would;change if the following information changes;the actual labour rates were $27.00, $22.90 and $17.00 for labour classes 3,2 and 1 respectively.


Paper#37462 | Written in 18-Jul-2015

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