Liverpool Manufacturing Limited developed the following standard costs for direct material and direct labour for one of their major products, the 45 litres heavy-duty plastic container.Each container requires the following: Types of Cost Standard quantity Standard price Direct materials 0.2 kilos £30 per kilo Direct labour 0.1 hours £17 per hour During June, Liverpool Manufacturing Limited produced and sold 10,000 containers using 2,100 kilos of direct materials at an average cost per kilo of £25 and 1,100 direct labour hours at an average wage of £16 per hour. Required: a) Calculate the following variances for June: i. Direct material price variance ii. Direct material quantity variance iv. Direct labour rate variance v. Direct labour efficiency variance b) Briefly comment on the material and labour variances calculated in a) c) Evaluate the importance of standard costing in budgeting process within firms
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.
Liverpool Manufacturing Limited developed the following standard costs for direct material and direct labour for one of their major products, the 45 litres heavy-duty plastic container.Each container requires the following:
|
Types of Cost |
Standard quantity |
Standard price |
|
Direct materials |
0.2 kilos |
£30 per kilo |
|
Direct labour |
0.1 hours |
£17 per hour |
During June, Liverpool Manufacturing Limited produced and sold 10,000 containers using 2,100 kilos of direct materials at an average cost per kilo of £25 and 1,100 direct labour hours at an average wage of £16 per hour.
Required:
a) Calculate the following variances for June:
|
i. Direct material price variance |
|
ii. Direct material quantity variance |
|
iv. Direct labour rate variance |
|
v. Direct labour efficiency variance |
b) Briefly comment on the material and labour variances calculated in a)
c) Evaluate the importance of
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