Q:18.

5 a) Material Price Variance

MPV=AQ(AP-SP)
MPV= 313060 X (3.98 - 4.1)
=RM 37567 (F) AP LESS THAN SP

Material Usage Varience

MUV= (SQ-AQ) SP
MUV={(220000 X 1.4) -313060) }4.1 336000/24000=1.4
=RM20746 (A) AQ MORE THAN SQ

Labour rate variance

LRV= AH (AR-SR)
LRV=194920(4.55-4.5)
= 9746 (A) AR MORE THAN SR

Labour efficiency variance

LEV= SR( SH-AH )

LEV= 4.5 {(220,000 X 0.9)- 194920} 216000/ 24000= 0.9
= 13860 (F) AH LESS THAN SH

VOH Efficiency Variance

VOEV= SR( SH - AH ) 216000/24000=0.9
={ (220000 X 0.9 )- 194920} X 2.2 475200 / 216000= 2.2
= RM6776 (F) AH LESS THAN SH

VOH expenditure variance

VOH expenditure variance= (SR- AR ) X AH
={(2.2 - (433700/194920)} X 194920
=RM4876 (A) AR MORE THAN SR

FOH expenditure variance

FOH expenditure variance= (Budgeted OH – Actual OH)
=(RM1521600 - RM1501240)
=RM20360 ( F) ACTUAL OVERHEAD LESS THAN BUDGETED OH

FOH volume variance

FOH volume variance= (Budgeted Volume – Actual Volume) OHAR
=(240000-220000) x 6.34 1521600/240000=6.34
126800 (A) ACTUAL VOLUME MORE THAN BUDGETED VOLUME

b)
b) Give reason in each case why the direct labour efficiency, variable overhead efficiency and fixe
volume variances may have arisen
Direct labour efficiency may arises due to the difference between the standard and actual time use
finished products. Besides that ,labour will spend more or less time than expected work done due t
efficiency serving. Moreover, may also appear unexpected lost time caused by production bottlene
shortages.
Variable overhead efficiency may aises as the difference between the actual time required to manu
b) Give reason in each case why the direct labour efficiency, variable overhead efficiency and fixe
volume variances may have arisen
Direct labour efficiency may arises due to the difference between the standard and actual time use
finished products. Besides that ,labour will spend more or less time than expected work done due t
efficiency serving. Moreover, may also appear unexpected lost time caused by production bottlene
shortages.
Variable overhead efficiency may aises as the difference between the actual time required to manu
and its budget time, and the impact of this difference. This variance arises because of productive effi
company replaces less efficient machines with more efficient machines, there will be a favorable di
Any decrease in machine efficiency due to continuous use may result in unfavorable changes.

Fixed overhead volume variances may arises is the difference between the fixed production costs in
the fixed production costs absorbed in the current period. The variance arises due to a change in th
attained in a period compared to the budget.Fixed overhead volume variance is favorable when the
overhead cost exceeds the budgeted amount .This is because the number of units produced in this
than the expected number of current production capacity, which reflects the effective use of fixed r
 UDGETED OH

240000=6.34
GETED VOLUME

rhead efficiency and fixed overhead

dard and actual time used to produce

expected work done due to high or low
d by production bottlenecks and resource

al time required to manufacture a product

 rhead efficiency and fixed overhead
dard and actual time used to produce
expected work done due to high or low
d by production bottlenecks and resource

al time required to manufacture a product

because of productive efficiency.If a
here will be a favorable difference. Indirectly,
nfavorable changes.

e fixed production costs in the budget and

ises due to a change in the level of output
nce is favorable when the applied fixed
of units produced in this case is greater
he effective use of fixed resources.
3A) a) Explain any four (4) factors that should be taken into account when deciding whether or not a v
investigated. 
-One of the factors that should be taken into account when deciding a variance should be investigated is
figures. If there are mistakes in calculating budget figures, or recording actual costs and revenues, could
reported where no problem actually exists. 
-Therefore, materiality. The size of the variance may indicate the scale of the problem and potential ben

-Besides, inherent variability of the cost or revenue. Some costs, by nature, are quite volatile and varian
surprising. Other costs, such as labour rates, are far more stable and even a small variance  may indicate

-Apart from that, trends in variances. One adverse variances may be caused by a random event. A series
indicates that a process is out of control.
- The type of standard being used is one of the factors to be consider. For example, ideal standard is use
adverse. Similar problem arises if average price levels are used as standard. If inflation exists, favourable
reported at the beginning of a period.

- Interdependence between variances. When the variance has significant changes, it may be affected by
the adverse material usage variance might be affected by the favour of material price variance this is du
of the material used which causes more material to be used in the production or more wastage created
- Cost of investigation. The cost on an investigation should be weighted against the benefits of correctin

b) Explain the meaning of “interdependence of variances” with a relevant example. 

-Interdependence of variances means that the variances should not be investigated in isolation because
to the causes or reasons may be inter-related or interdependence with other variances. Therefore, varia
totality to determine the correct cause or reason of such variances occurred.
-For example, the labor rate variance may be favorable because lower-paid workers are being used. This
unfavorable material usage variance because of a higher incidence of waste, (2) unfavorable labor efficie
longer hours to make the equivalent number of products, (3) unfavorable overhead efficiency variance b
causes more hours to be spent for a specified output, and (4) unfavorable overhead volume variance ar
machine breakdowns because of less skilled operators.
c) Dom Enterprise produces bread. The Accountant is currently setting the material cost standards for
analysis. This is their first time adopting standard costing hence they have no intention to improve on
Define any two (2) types of performance standards and advise which is more suitable to be used in Do
  -  One of the performance standards is attainable standards that amount of work will be carried out effi
operated or materials properly used. Some allowances are made for wastages and inefficiencies. For ins
bread, normal losses, fatigue or machine breakdown problems.
  -Current standards are also more suitable to be used in Dom Enterprise which is standards based on cu
because this is their first time adopting standard costing might cause abnormal loss or others standard w
information and no intention to improve on the current level of efficiency.  
 deciding whether or not a variance should be

nce should be investigated is reliability and accuracy of the

al costs and revenues, could lead to a variance being

e problem and potential benefits arising from its correction.  

are quite volatile and variances would therefore not be

small variance  may indicate a problem.

d by a random event. A series of adverse variances usually

xample, ideal standard is used, variances will always be

If inflation exists, favourable price variance is likely to be

hanges, it may be affected by another variance. For example,

erial price variance this is due to cheaper and lower quality
on or more wastage created in the process.
ainst the benefits of correcting the cause of a variance.

example. 
stigated in isolation because the occurrence of variances as
er variances. Therefore, variances should be investigated in
d.
workers are being used. This could lead to an (1)
e, (2) unfavorable labor efficiency variance because it takes
verhead efficiency variance because the substandard work
verhead volume variance arising from abnormally high

e material cost standards for use in the cost variance

no intention to improve on the current level of efficiency. 
ore suitable to be used in Dom Enterprise. 
of work will be carried out efficiently, machines properly
ges and inefficiencies. For instance, in the process of making

hich is standards based on current working conditions. This is

mal loss or others standard would provide meaningless
Past year Feb 2019-Q2
(a)
Direct material price=AQ(AP-SP) AP=394875/263250
=263250(1.5-1.45) 1.5
13162.5 UF SP=362500/250000
1.45

Direct material usage=SP(AQ-SQ)

=1.45[263250-(27000*250000/25000)
=1.45(263250-270000)
9787.5 F

Labour rate=AH(AR-SR) AR=1190700/97200

=97200(12.25-12.45) 12.25
19440 F SR=1089375/87500
12.45

Labour efficiency=SR(AH-SH)
=12.45(97200-945000) SH=(87500/25000)*27000
33615 UF 94500

Variable expenditure variable=AH(AR-SR)

=97200(3.15-3.1) AR=306180/97200
4860 UF 3.15
SR=271250/1089375
3.1

Variable efficiency variable=SR(AH-SH)

=3.1(97200-94500) SH=(87500/25000)*27000
8370 UF 94500

(b)

Direct labour adverse efficiency variance may have possibly been caused by:
-Increase in lost production time due to use of unskilled workers
-Lower output due to lack of training
-Errors in allocating time to job

(c )
ci)An ideal standards are those which can be achieved under the most favorable conditions with no allwances for n
losses,waste or machine downtime.They are set on the assumption of maximum efficiency and a perfect and ide
operating environment.

cii) An attainable standard is one which can be attained if a standard unit of work is carried out efficiently
machine properly operated or material property used.Allowances are made for normal losses, waste and
machine downtime.They represent what should be achieved with a reasonable level of effort under norm
operating conditions.
Using labour that is less experienced or less efficient
employee than the standard/expected employee.
• A change in the composition or mix of the work
force and so change the level of efficiency to be worse
then the normal standard.
• Poor supervision
• Unexpected lost time due to production bottlenecks
and resource shortages.
ons with no allwances for normal
ciency and a perfect and ideal

k is carried out efficiently, a

normal losses, waste and
evel of effort under normal