#611 The ICI Limited has a budgeted normal monthly capacity

The ICI Limited has a budgeted normal monthly capacity - Accounting

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Free Chegg Question

The ICI Limited has a budgeted normal monthly capacity of 12,000 labour hours, with a standard production of 8,000 units at this capacity, standard costs are:

Materials: 2 Kg @ Rs. 0.71

Labour: Rs. 10 per hour

Factory Overhead at normal capacity:

Fixed expenses: Rs. 6,000

Variable expense: Rs. 2.00 per labour

During June, actual factory overhead total Rs. 30,000 and 11,500 labour hours cost Rs. 109,250. During the month, 7,500 units were produced using 16,000 kg of materials at a cost of Rs. 0.73 per kg.

Required:

a. Two variances for materials

b. Two variances for labour

c. Two variances for factory overhead

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Free Chegg Answer

a.Two Variances for Materials

Direct Material Quantity Variance

= (SQ-AQ) * SP

= (8000-7500) * Rs.0.71 = 355 Unfavourable

Direct Material Price Variance

= (SP-AP) * AQ

= (0.71 - 0.73) * 7500 = -150 Unfavourable

b.Two Variances for Labour

Labour Quantity Variance

(AH * SR) - (SH * SR)

(11500*10) - (12000*10)

5000 Favourable

Labour Rate Variance

(AH * AR) - (AH * SR)

(109250 - (11500*10)

5750 Favourable

c.Two Variances for Factory Overhead

Variable Overhead rate variane

AH * AR - AH * SR

Actual Variable OH = 30000-6000 =24000

(24000 - (11500*2)

1000 Unfavourable

Variable overhead Efficiency Variance

AH * SR - SH * SR

(11500*2) - (12000*2)

23000-24000

-1000 Favourable.