Dawson Toys Ltd produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: Direct materials: 6 microns per toy at £ 0.50 per micron Direct labour: 1.3 hours per toy at £ 8 per hour During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow: Direct materials: 25,000 microns were purchased for use in production at a cost of £ 0.48 per micron Some 5,000 of these microns were still in I at the end of the month Direct labour: 4,000 direct labour-hours were worked at a cost of £ 36,000 Required (a) Compute the following variances for July: i. Direct materials price and quantity variances. ii. Direct labour rate and efficiency variances. (b) Prepare a brief explanation of the significance and possible causes of each variance. (c) What is meant by the term management by exception?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Dawson Toys Ltd produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy:
Direct materials: 6 microns per toy at £ 0.50 per micron
Direct labour: 1.3 hours per toy at £ 8 per hour
During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow:
Direct materials: 25,000 microns were purchased for use in production at
a cost of £ 0.48 per micron
Some 5,000 of these microns were still in I at the end of the month
Direct labour: 4,000 direct labour-hours were worked at a cost of £ 36,000
Required
(a) Compute the following variances for July:
i. Direct materials price and quantity variances.
ii. Direct labour rate and efficiency variances.
(b) Prepare a brief explanation of the significance and possible causes of each
variance.
(c) What is meant by the term management by exception?
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