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problem 1: A company manufactures a single product. Product is manufactured by processing via two sections, Cost Centre A and Cost Centre B. The company is introducing standard costing.

The standards will be based on the given budgeted information:

157_budgeted information.jpg


a) Describe the word Cost Centre.

b) Compute the standard cost of one completed product.

c) Compute variances for Cost Centre A in May for each of the given:

  • Material price
  • Material usage
  • Labor efficiency 
  • Labor rate

problem 2: Strouzer Ltd can make 4000 units of its products each year and the budget for the next year is as shown below:

Sales (at Rs 80 per unit)                   Rs 240 000 
Factory costs:
•    Variable                                     Rs 45 per unit 
•    Fixed                                         Rs 22 000
Selling and Distribution costs:
•    Variable                                     Rs 2.90 per unit 
•    Fixed                                         Rs 6 000

Strouzer has been approached by potential customer who is offering to pay Rs 50 per unit for a guaranteed order of 500 units. As far as variable selling and Distribution costs are concerned, they will be zero for this order as the potential customer has approached Strouzer directly.


a) State whether and why this proposal must be accepted.

b) Suppose a production problem means that production capacity drops to 3000 units for the year, with demand staying the same, at 4000 units per year.

What is your suggestion now?

c) What are the other non-financial factors which require to be considered before taking a decision apart from the financial elements? 

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M96733

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