Batu Ltd operates in Windhoek, manufacturing sandals. The company uses a standard costing system, with a plan to produce 10,000 pairs of sandals each month this year. The following standard costs apply: Account Amount per pair N$ Selling Price per unit 60 Leather (200 MM) 6 Labour (0.5 hours) 15 Variable overheads (Based on materials) 5 The company also budgets for fixed overheads of N$50,000 per month, absorbed by labour hours. The following are the company’s actual results for May 2021: Number of pairs manufactured 10,000 N$ Leather Purchased (2,500 metres) 80,000 Direct Labour (4,850 hours) 94,575 Variable overheads 45,000 Fixed overheads 46,000 Additional Information 1. There was no inventory at the beginning of the month. 2. An analysis of the production records shows that only 2,050 meters of Leather were issued to production. 3. Batu Ltd uses the absorption costing method to present their financial information. 4. The company recorded sales of all 10,000 units, at a total of N$650,000 Required: Calculate the labour price variance Indicate with an A if variance is Adverse or with an F if variance is Favourable
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Batu Ltd operates in Windhoek, manufacturing sandals. The company uses a
Account
Amount per pair
N$
Selling Price per unit
60
Leather (200 MM)
6
Labour (0.5 hours)
15
Variable overheads (Based on materials)
5
The company also budgets for fixed overheads of N$50,000 per month, absorbed by labour hours.
The following are the company’s actual results for May 2021:
Number of pairs manufactured
10,000
N$
Leather Purchased (2,500 metres)
80,000
Direct Labour (4,850 hours)
94,575
Variable overheads
45,000
Fixed overheads
46,000
Additional Information
1. There was no inventory at the beginning of the month.
2. An analysis of the production records shows that only 2,050 meters of Leather were issued to production.
3. Batu Ltd uses the absorption costing method to present their financial information.
4. The company recorded sales of all 10,000 units, at a total of N$650,000
Required: Calculate the labour price variance
Indicate with an A if variance is Adverse or with an F if variance is Favourable
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