Answered: Kranberry Networks Ltd had implemented…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter8: Standard Costs And Variances

Section: Chapter Questions

Problem 9EB: Eagle Inc. uses a standard cost system. During the most recent period, the company manufactured...

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Kranberry Networks Ltd had implemented a standard costing system to aid it in assessing the performance of its operations. In the first quarter of the current year, the company had the following variances:


Direct materials price variance	£	1,200	favourable
Direct materials quantity variance	£	324	unfavourable
Direct labour rate variance	£	3,375	favourable
Direct labour efficiency variance	£	90	unfavourable

The following additional information is provided for the first quarter:


Actual quantity of raw materials used per unit		4.00	kg
Actual cost of raw material per kg	£	7.00
Actual time taken to manufacture one unit		3.00	hours
Actual wage rate per hour	£	8.25
Actual cost of direct material purchased and used	£	42,000
Actual direct wages paid	£	37,125

The company hired a new supervisor in the beginning of the second quarter. Based on the supervisor’s inputs, the company replaced faulty machines. The company has reskilled its labour workforce to bring in efficiency in its production process.

The company’s cost records for the second quarter of the year are given below:


Actual quantity of raw materials used per unit		3.50	kg
Actual cost of raw material per kg	£	6.50
Actual time taken to manufacture one unit		2.50	hours
Actual wage rate per hour	£	8.50
Actual cost of direct material purchased and used	£	34,125
Actual direct wages paid	£	31,875

Required:
1.	Determine the following standards based on the variances and actual values provided for the first quarter.

	(a) Standard price per unit of raw material (Round your answer to 2 decimal places.)


	(b) Standard quantity of materials to be used in production in a quarter


	(c) Standard rate per hour of direct labour work (Round your answer to 2 decimal places.)


	(d) Standard hours of work allowed for a quarter’s production


2.	Based on the standards determined in requirement 1, compute the following variances for the second quarter of the year.

	(a) Direct materials price variance


	(b) Direct materials quantity variance


	(c) Direct labour rate variance


	(d) Direct labour efficiency variance

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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