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problem 1: A company has made the given standard cost information for one unit of product orange.

Direct materials      2 kg @ Rs 13/kg              Rs 26.00
Direct labor            3.3 hours @ Rs 4/hour     Rs 13.20
Fixed overheads     4 hours @ Rs 2.50           Rs 10.00

Actual results for the period were recorded as shown below:

Production                         4,820 units
Materials-9,720 Kg              Rs 121,500    
Labor-15,800 hours            Rs 66,360
Fixed overheads                  Rs 41,700

All of the materials were purchased and used throughout the period.


a) Compute the direct material price and usage variances.

b) Compute the direct labor rate and efficiency variances.

c) Compute the total fixed production overhead variance.

d) State two reasons why direct material price and direct labor rate variances take place.

problem 2: A company manufactures and sells a single product. The variable cost of product is Rs 2.50 per unit and all production each month is sold at a price of Rs 3.70 per unit. A potential new customer has offered to purchase 6,000 units per month at a price of Rs 2.95 per unit. The company has adequate spare capacity to produce this quantity. If the new offer is accepted, sales to existing customers are expected to drop by two units for every 15 units sold to the new customer.


a) Should the latest offer be accepted and if accepted what would be the total raise in monthly profit.

b) In short-term descision making context, which one of the given would be a relevant cost?

• Specific development costs already incurred.
• The cost of special material that will be purchased.
• The original cost of raw materials presently in inventory that will be used on the project.

c) In brief describe what you understand by the word sunk cost.

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M96706

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