Usage variance standard quantity actual quantity standard Material X 500 4 2000

Usage variance standard quantity actual quantity

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Usage variance: (standard quantity – actual quantity) ×standard (Material X) [(500 × 4 = 2,000) – 1900] × Rs.5= 500 F
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45(vii)Variable overhead : (fixed budget– actual variableoverheads) Expenditure (6,500 × Rs.1 = Rs.6,500 – Rs.8,000= 1,500 A(viii)Variable overhead: (standard hours – actual hours) × variableoverhead rate, Efficiency (7,000 – 6,500) × Rs.1= 500 F(ix)Fixed overhead expenditure: (budgeted fixed overhead ×actual fixed overhead)Department B (400 × Rs.3 = Rs.1,200) – Rs.1,600Allocated (400 × Rs.8 = Rs.3,200) – Rs.2,900.= 400 A= 300 F(x)Volume variance: actual production – budgeted production) ×fixed rateDepartment B (500 – 400) × Rs.3Allocated (500 – 400) × Rs.8= 300 F= 800 FDepartmental standard cost for actual production (500 ×Rs.100)= 50,000Actual cost= 59,000Total departmental variance9,000 AVariance (i) – (x) add to Rs.9,000 adverse. However, not all of the variances arewithin the control of department B. From the information given in the question, it isnot possible to specify which variances are within the controllable and non-controllable by department B. The following are assumed to be non-controllable:Wage rate: Assumed wage rates are set by the personnel department and that thecorrect grade of labour has been used.Material price: Assumed that a central purchasing department exists and that thepurchasing officer is responsible for the price variance of material X. The managerof department A is responsible for the price variance for the output of department A.Allocated fixed overhead expenditure variance: This expenditure is controllable atthe point where it is incurred. The actual spending on allocated fixed overheads isnot determined by department B.The following variances might be controllable by the manager of department B:Labour efficiencyMaterial usageVariable overhead efficiencyFixed overhead volumeFixed overhead expenditure
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46Fixed overhead volume might be due to a failure to achieve budgeted sales, ormachine breakdowns may have occurred that are beyond the control of departmentB. Any meaningful analysis of the overhead expenditure variance requires acomparison of actual and budgeted expenditure for each individual item. Only bycomparing individual items of expenditure and ascertaining the reasons for thevariance can one determine whether the variances are controllable or non-controllable. The foregoing analysis assume the volume variance and overheadexpenditure variances to be controllable by the manager of department B. Theperformance report should analyse variances into their controllable and non-controllable elements:Department B performance report: Month 7(Rs.)(Rs.)(Rs.)Standard cost for actual production50,000Controllable variancesLabour efficiency1,000 FMaterial usage:Department A900 FMaterial X500 F1,400 FOverhead expenditure:Fixed400 AVariable1,500 A1,900 AVariable overhead efficiency500 FVolume variance :Department B300 FAllocated800 F1,100 F2,100 FNon-controllable variancesWage rate1,000 AMaterial price:Department A8,400 AMaterial X2,000 A10,400 AFixed overhead expenditure (allocated)300 F11,100 AActual cost59,000(b)The standard costing system is not being operated effectively at present. The
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