QUEENS’ COLLEGE DISTANCE EDUCATION DIVISION

TEL. 011-8-12-19-82

ASSIGNMENT

ON

Cost and Management II

Date: - _____________

Total Weight: - 30 %

Name: - ____________________________ ID NO: - ______________

Department: -_______________ Study center: -_____________ Entry year: - ___________

Program: DEGREE

This is the only assignment of this course.

This assignment is to be completed and submitted to the office of your center. Do not
attempt the assignment until you are certain that you have understood the units it covers
and have revised your self-test exercises and learning activities, and other necessary
references.

If you have any question about the units and activities, state the item/s clearly on a
separate sheet of paper and attach to your assignment paper.
 Part One Discussion Questions
1 What is the master budget and why is it useful?

A master budget includes all of the lower-level budgets within an organization. It gives a firm a
broad overview of its finances and is often used as a central planning tool.

Master budgets are important because they serve as a planning tool to guide the company's
actions in the upcoming time period. They also help the firm direct the allocation of its resources
to achieve its goals

2 What is the operating budget and what are its components?

An operating budget is a detailed projection of what a company expects its revenue and expenses
will be over a period of time.
components of an operating budget:
 Revenue. This includes all the different ways a company makes money by selling goods or
services. ...
 Variable Costs. These are costs that rise or fall in lockstep with sales volume. ...
 Fixed Costs. ...
 Non-Cash Expenses. ...
 Non-Operating Expenses.

3 What are static budgets and static-budget variances?

The static budget is used as the basis from which actual results are compared. The resulting
variance is called a static budget variance. Static budgets are commonly used as the basis for
evaluating both sales performance and the ability of cost center managers to maintain control
over their expenditures.

Static Budget Variance: isThe difference between the actual results and the static budget.

4 How can managers develop a flexible budget and why is it useful to do so?

Flexible budgeting can be used to more easily update a budget for which revenue or other
activity figures have not yet been finalized. Under this approach, managers give their approval
for all fixed expenses, as well as variable expenses as a proportion of revenues or other activity
measures.
5 What is a standard cost and what are its purposes?

Standard costing is the practice of estimating the expense of a production process since
manufacturers cannot predict actual costs in advance and its purposes is to plan upcoming costs
to plan their costs for the coming year on various expenses such as direct material, direct labor,
or overhead.

6 What is benchmarking and why is it useful?

Business benchmarking is the process of comparing industry and general business best practices
against your own to identify performance gaps and achieve competitive advantages. This can be
applied to any product, process, function, or approach in business.

7 What is the relationship between the sales-volume variance and the production-volume
variance?

The sales volume variance is the difference between the actual and expected number of units
sold, multiplied by the budgeted price per unit. The formula is:

Sales volume variance= (Actual units sold - Budgeted units sold) x Budgeted price per unit

The production volume variance measures the amount of overhead applied to the number of
units produced. It is the difference between the actual number of units produced in a period
and the budgeted number of units that should have been produced, multiplied by the
budgeted overhead rate.

(Actual units produced - Budgeted units produced) x Budgeted overhead rate = Production
volume variance

8 How can variance analysis be used in an activity-based costing system?

Variance analysis is the quantitative investigation of the difference between actual and
planned behavior. This analysis is used to maintain control over a business through the
investigation of areas in which performance was unexpectedly poor.

The costing system is employed by a company to determine the cost of goods manufactured, the
cost of goods sold, and the cost of ending inventory. The variance analysis is done to find the
difference between budgeted values and actual values.
9 How are overhead variances useful in nonmanufacturing settings?

Overhead variances are the differences between the actual and budgeted amounts of overhead
costs that are allocated to products or services. They can indicate how well a company is
managing its resources, controlling its costs, and pricing its products or services.

10 How do managers plan variable overhead costs and fixed overhead costs?

When comparing fixed costs to variable costs, or when trying to determine whether a cost is
fixed or variable, simply ask whether or not the particular cost would change if the company
stopped its production or primary business activities. If the company would continue to incur the
cost, it is a fixed cost.

Fixed overhead costs are constant and do not vary as a function of productive output, including
items like rent or a mortgage and fixed salaries of employees. Variable overhead varies with
productive output, such as energy bills, raw materials, or commissioned employees' pay.

An understanding of the fixed and variable expenses can be used to identify economies of scale.
This cost advantage is established in the fact that as output increases, fixed costs are spread over a
larger number of output items.

Both fixed costs and variable costs contribute to providing a clear picture of the overall cost
structure of the business. Understanding the difference between fixed costs and variable costs is
important for making rational decisions about the business expenses which have a direct impact on
profitability.
 Part Two: Workout Questions
11 In August 2001, East Publishing Company’s costs and quantities of paper consumed in
manufacturing its 2002 Executive Planner and Calendar were as follow:
Actual unit purchase price Br 0.16 per page
Standard quantity allowed for good production 195,800 pages
Actual quantity purchased during August 230,000 pages
Actual quantity used in August 200,000 pages
Standard unit price Br 0.15 per page
Required:
a) Calculate the total cost of purchases for August.
b) Compute the material price variance on the bases of purchase
c) Calculate the material quantity variance.
d) Total FBV
12 Sagittarius Corp. has established the following standards for the prime costs of one of its chief
product, dart boards.
Standard Qty standard Price (Rate) Total Standard cost
Direct material 8.5 pounds Br.1.80/pound Br.15.30
Direct labor 0.25 hour 8.00/hour 2.00
Br.17.30
During May, Sagittarius purchased 160,000 pounds of direct material at a total cost of Br.304,
000. The total wages for May were Br.42, 000, 90% of which were for DL. Sagittarius
manufactured 19,000 dart boards during May; using 142,500 pounds of direct material & 5,000
direct labor hours.
Required: Compute the following variances for May.
a) Direct material price variances
b) Direct material usage variance
c) Direct material cost variance
d) Direct labor rate variance
e) Direct labor efficiency variance
f) Direct labor cost variance
Solution

Material Variances

i). SQ = Standard Quantity of Direct material for Actual Output would be:

1 dart board = 8.5 pounds Direct material

19,000 dart boards =?

So, SQ = 8.5 pounds Direct material x 19,000 = 161,500 pounds

ii). SP = Standard price of Direct material = Br. 1.80/pounds.

iii). AP = Actual Price of Direct material = Total cost of Direct material purchased

Total units of direct material purchased

= Br. 304,000 = Br.1.90/ pounds

160,000 pounds

iv). AQ=Actual Quantity of Direct material purchased or used = 142,500 pounds

a) MPV= (SP – AP) AQ

= (Br.1.80/pds - Br.1.90/ pds) 142,500 pounds = Br. 14,250(U)

b) MQV = (SQ-AQ) x SP

= (161,500 pounds - 142,500 pounds) Br. 1.80/pounds= Br. 34,200(F)

c) Material cost variance = MPV + MQV

= Br. 14,250 (U) + Br. 34,200 (F) = Br. 19,950 (F)

Labor Variances

i) SR= Standard Rate of DL per hour= Br.8.00/Hr

ii) SH=Standard Hours of DL for Actual Output would be:

0.25Hrs=1dart board

? = 19,000 dart boards

SH = 0.25x19, 000=4,750Hrs

iii) AH=Actual hrs of DL used = 5,000 hrs

iv) AR= 0.9 x 42,000 = 37,800 = Br.7.56/Hr

5,000 5,000
d) LRV= (SR-AR) x AH

= (Br.8.00/Hr - Br.7.56/Hr) 5,000 hrs = Br. 2,200 (F)

e) LEV = (SH – AH) x SR

= (4,750Hrs - 5,000 hrs) Br.8.00/Hr = Br.2, 000(U)

f) labor cost variance = LRV + LEV= Br. 2,200 (F) + Br.2, 000(U) = Br. 200 (F)