Yellow Ltd, a food manufacturer, is reviewing its operation for March 2021. The company produces only one product, called YM. The following standard revenue and cost data per unit of the product is available: Production and sales 90,000 units Selling price £24.00 Direct material (4 kg at £2.50 per kg) £10.00 Direct labour (0.5 hrs at £14.00 per hour) £7.00 Fixed production overheads for March 2021 were expected to be £220,000. Actual data for March 2021 was as follows: Production and sales 84,000 units of YM were produced and sold at £24.50 each. Direct material 378,000 kg were used at a total cost of £869,400. Direct labour 50,400 labour hours were worked at a total cost of £655,200. Fixed production overheads Fixed production overheads were £240,000. There were no inventories at the start or end of March 2021. Required: (a)Calculate the following variances: • Material price and usage variances • Labour rate and efficiency variances (b)Suggest possible explanations for the variances you have calculated in part (a). In your answer, ensure to discuss about the possible relationships between material and labour variances
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.
Yellow Ltd, a food manufacturer, is reviewing its operation for March
2021. The company produces only one product, called YM.
The following standard revenue and cost data per unit of the product is
available:
Production and sales 90,000 units
Selling price £24.00
Direct material (4 kg at £2.50 per kg) £10.00
Direct labour (0.5 hrs at £14.00 per
hour)
£7.00
Fixed production overheads for March 2021 were expected to be £220,000.
Actual data for March 2021 was as follows:
Production and sales 84,000 units of YM were produced and sold
at £24.50 each.
Direct material 378,000 kg were used at a total cost of
£869,400.
Direct labour 50,400 labour hours were worked at a total
cost of £655,200.
Fixed production
overheads
Fixed production overheads were £240,000.
There were no inventories at the start or end of March 2021.
Required:
(a)Calculate the following variances:
• Material price and usage variances
• Labour rate and efficiency variances
(b)Suggest possible explanations for the variances you have calculated in
part (a). In your answer, ensure to discuss about the possible
relationships between material and labour variances
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