Question 2 Elso Ltd (“Elso”) manufactures large-scale solvents for factories and household cleaning. The company uses standard costing system as a way of monitoring its cost. The following information is available for Elso for the month of July 2022: Budgeted Sales and production volume600 barrels Standard selling price per barrelN$1 750 Standard variable cost per barrelN$855 ActualSales and production volume620 barrels Actual selling price per barrelN$1 690 Actual variable cost per barrelN$863 Additional information:Standard cost card for one barrel of solventDirect materials34 litres @ N$15 per litreDirect labour15 hours @ N$12,50 per hourVariable overheads15 hours @ N$10,50 per hourNB: Overheads are absorbed on the basis of direct labour hours. Actual cost and usage information Total usageTotal cost (N$)Direct materials20 410 litresN$321 500Direct labour9 420 hoursN$117 800Variable overheads?N$95 600 REQUIRED: Calculate the following variances and indicate whether the variance obtained is favourable or unfavourable 2.1Material price variance 2.2Material usage variance 2.3Labour rate variance 2.4Labour efficiency variance 2.5Variable overheads expenditure variance 2.6Variable overheads efficiency variance 2.7Explain the possible causes of the type of variance obtained in 2.1 and 2.3?

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Uploaded: 2024-03-20T06:33:06.000Z
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Description: Question 2 Elso Ltd (“Elso”) manufactures large-scale solvents for factories and household cleaning. The company uses standard costing sys

1. material price variance = [actual quantity of material purchase X Actual price of material price]…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 2

Elso Ltd (“Elso”) manufactures large-scale solvents for factories and household cleaning. The company uses standard costing system as a way of monitoring its cost. The following information is available for Elso for the month of July 2022:

Budgeted	Sales and production volume	600 barrels
	Standard selling price per barrel	N$1 750
	Standard variable cost per barrel	N$855

Actual	Sales and production volume	620 barrels
	Actual selling price per barrel	N$1 690
	Actual variable cost per barrel	N$863

Additional information:

Standard cost card for one barrel of solvent
Direct materials	34 litres @ N$15 per litre
Direct labour	15 hours @ N$12,50 per hour
Variable overheads	15 hours @ N$10,50 per hour
NB: Overheads are absorbed on the basis of direct labour hours.

Actual cost and usage information
	Total usage	Total cost (N$)
Direct materials	20 410 litres	N$321 500
Direct labour	9 420 hours	N$117 800
Variable overheads	?	N$95 600

REQUIRED:

Calculate the following variances and indicate whether the variance obtained is favourable or unfavourable
2.1	Material price variance
2.2	Material usage variance
2.3	Labour rate variance
2.4	Labour efficiency variance
2.5	Variable overheads expenditure variance
2.6	Variable overheads efficiency variance
2.7	Explain the possible causes of the type of variance obtained in 2.1 and 2.3?

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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