Raw Material 1 Beg Balance 0 18000 Closing Balance 6000 Raw Material 2 Beg

# Raw material 1 beg balance 0 18000 closing balance

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Raw Material -1 Beg. Balance 0 18,000 Closing Balance 6,000 Raw Material -2 Beg. Balance 18,000 Closing Balance 41,400 Work in Progress Beg. Balance 0 Raw Material -2 72,000 Closing Balance 0
FINAL EXAMINATION : NOVEMBER, 2005 7 Sundry Creditors 1,27,200 Wages outstanding 51,750 Quantity Variance-Material-1 1,200 Price Variance-Material-2 6,600 Efficiency Variance-Labour 7,200 Other information’s are: standard cost of Material – 2 is Rs180 per litre and standard quantity is 5 litres. Standard wages rate is Rs24 per hour and a total 2,300 hours were worked during the week. 1,000 kg of Material -1and 550 litres of Material-2 were purchased. Sundry creditors are for material acquisition, and wages outstanding pertain to direct labour. You are required to compute Material-1 Rate Variance, Material-2 Quantity Variance & Labour Spending Variance, Standard hours allowed for production and purchase value of Material-1 for variance analysis discussion. (b) Write short note on pricing by service sector. (c) Write short note on ‘Zero Base Budgeting’ as an approach towards productivity improvement.’ (11+4+4 = 19 Marks) Answer (a) Material – 1 Rate Variance = Standard cost of material purchased – Actual cost = Rs24, 000 – Rs21, 600 = Rs2, 400 (F) Material – 2 Quantity Variance = SR × SQ – SR × AQ = Rs900 × 80 units – Rs75, 600 = Rs3, 600 (A) Labour Spending Variance = SR × AH – AR × AH = Rs24/per hour × 2300 hours – Rs51, 750 = Rs3, 450 (A) Labour Efficiency Variance = SR × (SH – AH) – 7200 = 24 (SH – 2300) SH = 2000 Hrs.
PAPER – 5 : COST MANAGEMENT 8 Rs Total Cost of material purchased 1,27,200 Less : Purchase Value of Material – 2 1,05,600 Cost of material –1 21,600 Working Notes: (1) Standard Cost of Material – 2 actually consumed in production = Rs72, 000 (Given) Standard cost of Material – 2 per unit: 5 litres × Rs.180 = Rs900 No of units produced = Rs.72, 000 / Rs900 = 80 units Total material – 1 used in production = Rs.18, 000 (Given) Add Closing Inventory = Rs.6, 000 (Given) Less Opening Inventory = 0 Hence Standard Cost of Material – 1 purchased = Rs24, 000 (2) Standard Rate of Material -1 = Rs.24, 000 / 1,000kg = Rs.24 per kg Standard Cost of Material – 1 = Rs.18, 000 Add favourable Quantity Variance = Rs.1, 200 Material – 1 allowed = Rs.19, 200 Standard quantity of Material – 1 allowed= Rs19, 200/Rs24 = 800 Kg. Standard quantity per unit =800kg/80units = 10 kg Standard purchase price for Material – 2 = (550liters × Rs180) = Rs.99, 000 Add unfavourable Rate Variance = Rs.6, 600 Actual cost Price of Material – 2 = Rs.1, 05, 600 (3) Opening balance of Material – 2 = Rs.18, 000 Add Standard Cost of Purchase (550 litres × Rs180) = Rs.99, 000 Less Closing Balance = Rs.41, 400 Material-2 Consumed at Standard cost = Rs.75, 600 (b) The service has no physical existence and it must be priced and billed to customers. Most service organizations use a form of time and material pricing to arrive at the price of a service. Service companies such as appliance repair shops, automobile repair business arrives at prices by using two computations, one for labour and other for material and parts. If material and parts are not part of service being performed, then only direct labour costs are used as basis for determining price. For professionals such as accountants and consultants a factor representing all overhead costs is applied to the
FINAL EXAMINATION : NOVEMBER, 2005 9

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