Solution needed for Costing problem

Cost Accounts 1145 views 4 replies

srinivas

humble devotee of saraswati

885 Points Joined January 2008

Please provide solution to the below problem:

Costing problem

suppose that 4 kgs of material A are required to make one unit of product TS, each kilogram costing Rs.10. It takes direct labour 5 hours to make one unit of product TS. The labour force is paid Rs.4.50 per hour.

During the period the following results were recorded.

Material A: 8,200 kgs purchased on credit* Rs.95000

Material A: kgs issued to production* 8200 kgs

Units of product TS produced* 1600

Direct labour hours worked* 10000

Cost of direct labour* Rs.32000

Required:

(a) Calculate the following variances for the period.

· Material price variance

· Material usage variance

· Labour rate variance

· Labour efficiency variance

(b) Prepare journal entries for the transactions marked * above, together with the variances calculated in (a).

You should make the following assumptions

· An integrated accounting system is maintained

· There are no opening or closing stocks of work in progress.

Please mail the solution to psrinivas1 @ in.com

Replies (4)

S.Srinivasaraghavan

Chief Financial Officer and Co

11318 Points Joined September 2007

Actual Std

Material A: 8,200 kgs purchased on credit*Rs 95000 82000

Issued to production* 8200 kgs Rs 95000 82000

Units of product TS produced* 1600 2050

Material reqd for 1600 is kg 6400

Std cost of std material consumption 64000

Direct labour hours worked* 10000 10250

Cost of direct labour* Rs.32000 46125

Std hours required for actuals 8000

Std cost of std hrs reqd. Rs 36000

Adverse Price variance: Rs 13000

Adverse Usage variance Rs 18000

Favourable labour rate Var Rs 13000

dverse Labour efficiency Rs 9000

Regarding journal entries, you can pass based on the above data. It is simple.

srinivas

humble devotee of saraswati

885 Points Joined January 2008

Sir,

Thank you for providing the solution,

I did not understand how you got std units produced as 2050 units and std cost of labour as rs.46,125

S.Srinivasaraghavan

Chief Financial Officer and Co

11318 Points Joined September 2007

As you have used 8200 kg, at the rate of 4kg per unit it is 2050. Standard cost of labour for 2050 units at Rs4.50 per hour would have been Rs 46125. These are only for academic data. I have also made some arithmetical error corrections pl. note