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problem 1: Borrico ltd produces a single product and they had recently introduced a system of budgeting and variance analysis. The given information is available for the month of July 2011:

1)                                                      Budget (Rs)       Actual (Rs)
Direct materials                                    200,000            201,285
Direct labor                                          313,625            337,500
Variable manufacturing overhead            141,400            143,000
Variable sales overhead                          64,400              69,500
Fixed manufacturing overhead                75,000              71,000
Administration costs                             150,000            148,650

2) Standard costs were:

Direct labor 48,250 hours at Rs 6.50 per hour
Direct materials 20,000 kg at Rs 10 per kg

3) Actual manufacturing costs were:

Direct labor 50,000 hours at Rs 6.75 per hour.
Direct materials 18,900 kg at Rs 10.65 per kg

4) Budgeted sales were 20,000 units at Rs 50 a unit.

Actual sales were:
15,000 units at Rs 52 a unit
5,200 units at Rs 56 a unit

5) There was no work in progress or inventory of the finished goods.

Required:

a) Compute the direct materials cost variance, direct materials price variance and direct materials usage variance.

b) Compute the direct labor cost variance, direct labor rate variance and direct labor efficiency variance.

c) What use can the management of Borrico Ltd make of the variances computed in (a) and (b) above?

problem 2: XYZ Company produces and markets a specific product which they sell at Rs 20 per unit. Present production is 400,000 units per month that represents 80% of capacity. They have the opportunity to use their surplus capacity by selling their product at Rs 13 per unit to an outside buyer. Total costs for the last month were Rs 5,600,000 of which Rs 1,600,000 were fixed cost. This represented a total cost of Rs 14 per unit.

Required: Based on the above financial information only, should XYZ Company allow the order?

problem 3: Describe the opportunity cost concept and why it is utilized in the decision making.

Cost Accounting, Accounting

• Category:- Cost Accounting
• Reference No.:- M96699

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