We will illustrate the calculation of this variance

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different from the agreed rate, that is, (SR-AR)AH. We will illustrate the calculation of this variance from the following questions. After using the question to illustrate the Labour Rate and Efficiency Variances, we will use it again to repeat the Material Cost Variance up to the point of Mix and Yield. ILLUSTRATION 9-2 SALVATION Ltd manufactures and sells SALOME soft drinks. The standard direct post per container is as follows: Materials 100 litres concentrated juice at N 2 per litre 200 litres of carbonated water at N 2.50 per litre 10 labour hours at N 9.00 per hour The budgeted monthly production and sales is 500 containers and the selling price is N 1,000 per container. The following details relate to October, 2003, when 510 containers of soft drinks were produced and sold: N Sales 506,500 Materials used: Concentrated juice 51,600 litres 102,500 Carbonated Water 101,500 litres 258,800 Labour 5,000 hours cost 45,750 Required (a) Compute the price and usage variances for each material. (b) Calculate the wage rate and efficiency variances. (c) Comment briefly upon the information revealed by each of the variances you have computed. Labour Cost Variance Labour rate Variance Labour Efficiency Variance
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COSTING AND QUANTITATIVE TECHNIQUES 222 SUGGESTED SOLUTION 9-2 Labour Cost Variances N Standard Labour Cost of Actual Production = 510 containers @ N 90 labour cost per container, that is, 45,900 Less Actual Wages Cost N 45,750 150 F Labour Rate Variances Variance due to remunerating labour at a different rate N Actual hours paid @ actual rate 45,750 Actual hours if paid @ standard rate = 45,000 (750) A Labour Efficiency Variance The variance due to spending more or less hours than should have been spent to produce the actual production; valued at the standard wage rate. This is (SH-AH)SR. Actual hours taken to produce output = 5,000 hrs. Hours expected to have been spent (Standard hours) = 510 x 10, that is, = 5,100 hrs. Hours saved 100 hrs. Therefore, Labour Efficiency Variance = 100 hrs x N 9 = N 900 F 9.7 MATERIAL MIX AND YIELD VARIANCES Where it is possible to use more or less quantity of a raw material in substitution for another, then any usage in a proportion different from the standard proportion will give rise to a usage variance due to mixture, called Material Mix Variance. The yield variance is the residual material variance or the absolute quantity difference assuming materials were used at the standard mix. For these variances, a tabular presentation will simplify the exercise, even though an alternative, that is, the average price method, can also be used for the yield variance. Using illustration 9-2, the material mix and yield variances can be calculated.
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STANDARD COSTING 223 Material Mix Variance To calculate the Material Mix Variance, obtained from the question, the standard mix recommended. In this question, it is ratio 1:2, that is, 100 litres of juice to 200 litres water. Then use it to restate the actual quantity of materials used, to obtain actual quantity at standard proportion. Then compare this proportion with the actual proportion used. It is a variance due to the usage of the actual materials used in a proportion different from the standard proportion. Thus Actual Quantity
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