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ACCA · Question 37 · E. Standard costing
SECTION B - MULTI-TASK QUESTION 2 (STANDARD COSTING)
Scenario: AeroDrone Technologies manufactures commercial drones. They use standard marginal costing. The standard cost card for one drone is:
- Direct Materials: 4 units of carbon fiber @ $50/unit = $200
- Direct Labor: 10 hours @ $20/hour = $200
- Standard Contribution per drone = $300
Actual results for the month (1,000 drones produced and sold):
- Materials purchased and used: 4,200 units costing $218,400
- Labor worked: 9,800 hours costing $205,800
- Idle time recorded: 200 hours (included in the 9,800 hours paid)
Based on the scenario, answer the following 5 sub-tasks.
Task 1: Calculate the Direct Material Price Variance.
Task 2: Calculate the Direct Material Usage Variance.
Task 3: Calculate the Direct Labor Rate Variance.
Task 4: Calculate the Direct Labor Efficiency Variance (based on active hours worked).
Task 5: Calculate the Idle Time Variance.
SECTION B - MULTI-TASK QUESTION 2 (STANDARD COSTING)
Scenario: AeroDrone Technologies manufactures commercial drones. They use standard marginal costing. The standard cost card for one drone is:
- Direct Materials: 4 units of carbon fiber @ $50/unit = $200
- Direct Labor: 10 hours @ $20/hour = $200
- Standard Contribution per drone = $300
Actual results for the month (1,000 drones produced and sold):
- Materials purchased and used: 4,200 units costing $218,400
- Labor worked: 9,800 hours costing $205,800
- Idle time recorded: 200 hours (included in the 9,800 hours paid)
Based on the scenario, answer the following 5 sub-tasks.
Task 1: Calculate the Direct Material Price Variance.
Task 2: Calculate the Direct Material Usage Variance.
Task 3: Calculate the Direct Labor Rate Variance.
Task 4: Calculate the Direct Labor Efficiency Variance (based on active hours worked).
Task 5: Calculate the Idle Time Variance.
How to approach this question
Use standard variance formulas. Remember that efficiency variance uses active hours (paid hours - idle hours), while rate variance uses total paid hours.
Full Answer
Task 1 (Material Price): (Std Price * Actual Qty) - Actual Cost = ($50 * 4,200) - $218,400 = $210,000 - $218,400 = $8,400 Adverse.
Task 2 (Material Usage): (Std Qty for Actual Output - Actual Qty) * Std Price = ((1,000 * 4) - 4,200) * $50 = (4,000 - 4,200) * $50 = $10,000 Adverse.
Task 3 (Labor Rate): (Std Rate * Actual Hours Paid) - Actual Cost = ($20 * 9,800) - $205,800 = $196,000 - $205,800 = $9,800 Adverse.
Task 4 (Labor Efficiency): (Std Hours for Actual Output - Active Hours) * Std Rate = ((1,000 * 10) - 9,600) * $20 = (10,000 - 9,600) * $20 = 400 * $20 = $8,000 Favorable.
Task 5 (Idle Time): Idle Hours * Std Rate = 200 * $20 = $4,000 Adverse.
Common mistakes
Using total paid hours (9,800) for the efficiency variance instead of active hours (9,600), which would result in a $4,000 Favorable variance instead of $8,000 Favorable.
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