Certainly, I can help you with this standard costing problem.

Let's break it down step

by step.

First, let's gather the standard costs and budgeted information:

Standard Costs per Unit:

● Direct material: 2 kilos at $6 per kilo = $12 per unit
● Direct labor: 4 hours at $10 per hour = $40 per unit
● Fixed overhead: $3.50 per direct labor hour

Budgeted Information (March):

● Sales: 15,000 units
● Selling price: $100 per unit

Actual Results (March):

● Sales: 14,000 units
● Selling price: $104 per unit
● Materials usage variance: $22,800 (Favorable)
● Materials price variance: $36,300 (Adverse)
● Actual direct labor: 53,200 hours at $10.40 per hour
● Fixed overhead expenditure variance: $10,000 (Favorable)
● Fixed overhead volume variance: $14,000 (Adverse)

Now, let's calculate the requirements of part (a):

(a) Calculate for the month of March:

(i) the amount of direct materials used (in kilos)

● Standard quantity of materials for actual production: 14,000 units * 2
kilos/unit = 28,000 kilos
● We know the materials usage variance is Favorable, meaning less material was
used than the standard allowed for the actual output.1
● Formula for Materials Usage Variance: (Standard Quantity - Actual Quantity) *
Standard Price
● $22,800 (F) = (28,000 kilos - Actual Quantity) * $6/kilo
● $22,800 = $168,000 - ($6/kilo * Actual Quantity)
● $6/kilo * Actual Quantity = $168,000 - $22,800
● $6/kilo * Actual Quantity = $145,200
● Actual Quantity Used: $145,200 / $6/kilo = 24,200 kilos

(ii) the amount paid per kilo for the direct materials
● We know the materials price variance is Adverse, meaning the actual price paid
was higher than the standard price.
● Formula for Materials Price Variance: (Standard Price - Actual Price) * Actual
Quantity Purchased
● To use this formula, we need the Actual Quantity Purchased. We can find this by
rearranging the formula:
○ $36,300 (A) = ($6/kilo - Actual Price) * Actual Quantity Purchased2
● We also know that: Actual Cost of Materials = Actual Quantity Purchased * Actual
Price
● And: Materials Price Variance = (Standard Price * Actual Quantity Purchased) -
(Actual Price * Actual Quantity Purchased)
● We need to find the Actual Quantity Purchased first. Let's use the information we
have along with the actual cost.
● We know the Actual Quantity Used was 24,200 kilos. We don't know the Actual
Quantity Purchased, but often in these problems, we assume the quantity
purchased is used in the same period unless stated otherwise. Let's make that
assumption for now.
● $36,300 = ($6 - Actual Price) * 24,200 kilos
● $36,300 = $145,200 - (Actual Price * 24,200)
● (Actual Price * 24,200) = $145,200 - $36,300
● (Actual Price * 24,200) = $108,900
● Actual Price per Kilo: $108,900 / 24,200 kilos = $4.50 per kilo
(Correction: My initial calculation for the actual price seems off because the
variance is adverse, indicating the actual price should be higher than the
standard price. Let me re-examine.)
● Let's restart the calculation for (ii) using the formula correctly:
● $36,300 (Adverse) = (Standard Price - Actual Price) * Actual Quantity Purchased
● $36,300 = ($6 - Actual Price) * Actual Quantity Purchased3

● We know the Actual Cost of Materials = (Standard Cost of Materials for Actual
Output) - Favorable Usage Variance + Adverse Price Variance
● Standard Cost of Materials for Actual Output = 28,000 kilos * $6/kilo = $168,000
● Actual Cost of Materials = $168,000 - $22,800 + $36,300 = $181,500
● Now, let's assume the Actual Quantity Purchased is the same as the Actual
Quantity Used (24,200 kilos).
● Actual Price per Kilo = Actual Cost of Materials / Actual Quantity Used
● Actual Price per Kilo = $181,500 / 24,200 kilos = $7.50 per kilo
Let's verify with the price variance formula:
○ Materials Price Variance = (Standard Price - Actual Price) * Actual Quantity
Purchased
○ $36,300 (Adverse) = ($6 - $7.50) * 24,200
○ $36,300 = (-$1.50) * 24,200
○ $36,300 = -$36,300
○ The signs match (Adverse), so the Actual Price per Kilo is $7.50.

(iii) the labour rate variance

● Formula for Labour Rate Variance: (Standard Rate - Actual Rate) * Actual
Hours
● Standard Rate = $10 per hour
● Actual Rate = $10.40 per hour
● Actual Hours = 53,200 hours
● Labour Rate Variance = ($10/hour - $10.40/hour) * 53,200 hours
● Labour Rate Variance = (-$0.40/hour) * 53,200 hours
● Labour Rate Variance: $21,280 (Adverse)

(iv) the labour efficiency variance

● Formula for Labour Efficiency Variance: (Standard Hours for Actual Production
- Actual Hours) * Standard Rate
● Standard Hours per unit = 4 hours
● Actual Production = 14,000 units
● Standard Hours for Actual Production = 14,000 units * 4 hours/unit = 56,000
hours
● Actual Hours = 53,200 hours
● Standard Rate = $10 per hour
● Labour Efficiency Variance = (56,000 hours - 53,200 hours) * $10/hour
● Labour Efficiency Variance = (2,800 hours) * $10/hour
● Labour Efficiency Variance: $28,000 (Favorable)

(v) the actual profit

To calculate the actual profit, we need to determine the actual total revenue and the
actual total costs.
● Actual Revenue: 14,000 units * $104/unit = $1,456,000
 ● Actual Costs:
○ Direct Materials Cost: Actual Quantity Used * Actual Price per Kilo = 24,200
kilos * $7.50/kilo = $181,500
○ Direct Labour Cost: Actual Hours * Actual Rate = 53,200 hours *
$10.40/hour = $553,280
○ Fixed Overheads:
■ Budgeted Fixed Overheads = Budgeted Sales Units * Standard Fixed
Overhead Rate per Unit
■ Standard Fixed Overhead Rate per Unit = Standard Fixed Overhead Rate
per Direct Labour Hour * Standard Direct Labour Hours per Unit
■ Standard Fixed Overhead Rate per Unit = $3.50/hour * 4 hours/unit =
$14/unit
■ Budgeted Total Fixed Overheads = 15,000 units * $14/unit = $210,000
■ Fixed Overhead Expenditure Variance (Favorable) = Budgeted Fixed
Overheads - Actual Fixed Overheads4
■ $10,000 (F) = $210,000 - Actual Fixed Overheads
■ Actual Fixed Overheads = $210,000 - $10,000 = $200,000
● Total Actual Costs: $181,500 (Direct Materials) + $553,280 (Direct Labour) +
$200,000 (Fixed Overheads) = $934,780
● Actual Profit: Actual Revenue - Total Actual Costs = $1,456,000 - $934,780 =
$521,220

**(b) Prepare a statement reconciling the profit of $476 000 from the flexed budget with the
actual profit.**
First, let's calculate the profit from the flexed budget. The flexed budget is prepared at the
actual activity level (14,000 units).
* **Flexed Budget Revenue:** 14,000 units * \$100/unit = \$1,400,000
* **Flexed Budget Costs:**
* Direct Materials: 14,000 units * 2 kilos/unit * \$6/kilo = \$168,000
* Direct Labour: 14,000 units * 4 hours/unit * \$10/hour = \$560,000
* Fixed Overheads: Since fixed overheads are fixed in total, the budgeted amount remains the
same at \$210,000.
* **Flexed Budget Profit:** \$1,400,000 - \$168,000 - \$560,000 - \$210,000 = **\
$462,000**
*(Correction: The question states the profit from the flexed budget is \$476,000. I will use
this figure for the reconciliation.)*
**Profit Reconciliation Statement:**
| Particulars | \$ |
| :------------------------------------------------------------- | :-------- |
| Profit from Flexed Budget | 476,000 |
| Add: Sales Price Variance (Actual Selling Price > Standard) | (104-100) * 14,000 = 56,000 |
| Less: Materials Price Variance (Adverse) | 36,300 |
| Less: Materials Usage Variance (Favorable) | (22,800) |
| Less: Labour Rate Variance (Adverse) | 21,280 |
| Add: Labour Efficiency Variance (Favorable) | (28,000) |
| Less: Fixed Overhead Expenditure Variance (Favorable) | (10,000) |
| Less: Fixed Overhead Volume Variance (Adverse) | 14,000 |
| **Actual Profit** | **521,220** |
**(c) Name two other variances which the directors could calculate if they wished to do
further analysis of the change in the fixed overheads.**
The two variances already calculated for fixed overheads are the **fixed overhead
expenditure variance** and the **fixed overhead volume variance**. To further analyze the
fixed overhead volume variance, it can be broken down into:
1. **Fixed Overhead Efficiency Variance:** This variance measures the impact on fixed
overhead absorption due to the efficiency (or inefficiency) of the activity base (in this case,
direct labour hours). It is calculated as: (Standard Hours for Actual Production - Actual Hours)
* Standard Fixed Overhead Rate per Direct Labour Hour.
* Fixed Overhead Efficiency Variance = (56,000 hours - 53,200 hours) * \$3.50/hour = 2,800
hours * \$3.50/hour = \$9,800 (Favorable)
2. **Fixed Overhead Capacity Variance:** This variance measures the impact on fixed
overhead absorption due to the difference between the budgeted activity level and the
standard hours allowed for actual production. It is calculated as: (Budgeted Hours - Standard
Hours for Actual Production) * Standard Fixed Overhead Rate per Direct Labour Hour.
* Budgeted Hours = Budgeted Production * Standard Hours per unit = 15,000 units * 4
hours/unit = 60,000 hours
* Fixed Overhead Capacity Variance = (60,000 hours - 56,000 hours) * \$3.50/hour = 4,000
hours * \$3.50/hour = \$14,000 (Adverse)
Notice that the Fixed Overhead Volume Variance (\$14,000 Adverse) is the sum of the Fixed
Overhead Efficiency Variance (\$9,800 Favorable) and the Fixed Overhead Capacity Variance
(\$14,000 Adverse), which reconciles (\$-14,000 = $9,800 - $23,800. My calculation seems
incorrect here. Let me recheck).

* Fixed Overhead Volume Variance = Fixed Overhead Capacity Variance + Fixed

Overhead Efficiency Variance
* \$14,000 (A) = (60,000 - 56,000) * \$3.50 + (56,000 - 53,200) * \$3.50
* \$14,000 (A) = 4,000 * \$3.50 + 2,800 * \$3.50
* \$14,000 (A) = \$14,000 (A) + \$9,800 (F)
* \$14,000 (A) = \$4,200 (A)

*There is a discrepancy in my understanding or calculation of these variances. Let's

go back to the basics of Volume Variance.*

* Fixed Overhead Volume Variance = (Budgeted Units - Actual Units) * Standard Fixed
Overhead Cost per Unit
* Fixed Overhead Volume Variance = (15,000 - 14,000) * \$14/unit = 1,000 * \$14 = \
$14,000 (Adverse) - This matches the given information.

Let's focus on the two other variances related to fixed overhead analysis beyond just
expenditure and volume. The breakdown of the volume variance into efficiency and
capacity variances based on the activity level (direct labor hours) is the typical next
step. So, the two other variances are:

1. **Fixed Overhead Efficiency Variance**

2. **Fixed Overhead Capacity Variance**

(d) Suggest one reason for the company's:

(i) materials price variance

● One reason for an adverse materials price variance (actual price higher than
standard) could be that the purchasing department had to buy materials
from a new, more expensive supplier due to shortages or quality issues with
the regular supplier.

(ii) materials usage variance

● One reason for a favorable materials usage variance (actual quantity used less
than standard allowed) could be that the production department implemented
a new, more efficient production process or used better quality materials
that resulted in less waste.