# Fundamentals Of The Cost Benefit Accounting Essay

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## Questions:

1. Calculate the following variance:
1. Direct materials price and quantity (Efficiency) variances
2. Direct labour rate and efficiency variances
3. Variable overhead spending and efficiency variances
4. Fixed overhead spending and production volume variances

2. Discuss your results and provide Rafael with recommendations on whether some of the variances should be investigated further.

Direct Materials Price and Quantity (Efficiency) Variances

 Materials Actual price 4.6 Standard Price 4.5 Quantity Purchased 25000 Material Price Variance 2500 Material Quantity (Efficiency) Variance Actual Quantity Used for Actual Output 23100 Standard Quantity allowed for Actual Output 25000 Standard Price 4.5 Material Quantity (Efficiency) Variance -8550

Working Notes

Material Price Variance

= (4.6 – 4.5) = 0.1

= 25,000 x 0.1 = 2500

Material Quantity Variance

= 23100 – 25000 = (1900)

= (1900) x Standard price

Or (1900) x 4.5 = (8550)

Direct Labour Rate and Efficiency Variances

 Labour Labour Rate Variance Actual Labour Price Per hour 14.6 Standard labour price per hour 15 Actual Hours use 40100 Labour Rate Variance -16040 Labour Efficiency Variance Actual Hours for actual output 40100 Standard hours for actual output 40000 Standard Price 4.5 Labour Efficiency Variance 450

Working Notes:

Labour Variance

Actual labour price per hour – Standard Labour price per hour

= 14.6 – 15 = (0.4)

= (0.4) x Actual Hours Used

Or (0.4) x 40100 = (16040)

Labour efficiency variance:

Actual hours for actual output – Standard hours for actual output x Standard Price

= (40100 – 40000) x 4.5

= 450

Variable Overhead Spending and Efficiency Variance:

 Variable Overhead Variable Overhead Spending Variance Actual Variable Overhead Costs 119000 Standard variable overhead rate 3 Actual volume of allocation base 25000 44000 Variable Overhead Efficiency Variance Actual volume of allocation base 23100 Standard Volume of allocation base for output 25000 Standard variable overhead rate 3 Variable Overhead Efficiency Variance -5700

Working Notes

Actual variable overhead costs – (Standard variable overhead rate x actual volume of allocation base)

= 119000 – (3 x 25000)

= 44,000

Actual volume of allocation base – Standard volume of allocation base x Standard variable overhead rate

= 23100 – 25000 x 3 = (5700)

Fixed Overhead Spending and Production Volume Variance

 Fixed Overhead Fixed overhead spending variance Actual Fixed overhead costs 180000 Estimated fixed overhead costs 160000 Fixed overhead spending variance 20000 Fixed overhead volume variance Estimated volume of allocation base 8000 standard volume of allocation base for output 7800 standard fixed overhead allocation rate 20 Fixed overhead volume variance 4000

### Working Notes

= 180,000 – 160,000

= 20,000

Estimated volume of allocation base – Standard volume of allocation base for output x standard fixed overhead allocation rate

= (8000 – 7800) x 20

= 4,000