Problem
1. A company P Ltd has a set the standard material cost per unit at 3Kg @ £4 per Kg. For November 2004 actual data was: 1200 units were made which consumed 5000 Kg of materials costing £16,250. In retrospect it is realised that the standard cost per unit should have been: 4 Kg @ £3.50 Kg. Calculate the appropriate planning and operating variances.
2. What are the limitations of planning variances?
3. In this example calculate variances and then identify which manager is capable of controlling the variance and who should be held responsible. A company makes product Y using standard 6 Kg of material @ £2 per kg. Actual output during a period is 100 units which used 640 Kg of material @ £2.30 per kg. Calculate variances & explain responsibility.
4. S Ltd operates a standard costing system.
-Budgeted production is 1000 units.
-Direct material cost is 7 kg @ £4 per Kg = £28
Actual results for Nov were as follows:
-Production = 900 units
-Direct material purchased and used 6500 kg costing £28600. It has subsequently been noted that the market price for the material should have been set at £4.50 per Kg during the period.
Calculate the planning and material operational variances.