ILLUSTRATIONS
1. OFF Company began operations several years ago. The company purchased a building and,
since only half of the space was needed for operations, the remaining space was rented to
another firm for rental revenue of $20,000 per year. The success of OFF Company's product
has resulted in the company needing more space. The renter's lease will expire next month
and OFF will not renew the lease in order to use the space to expand operations and meet
demand.
The company's product requires materials that cost $25 per unit. The company employs a
production supervisor whose salary is $2,000 per month. Production line workers are paid $15
per hour to manufacture and assemble the product. The company rents the equipment needed to
produce the product at a rental cost of $1,500 per month. Additional equipment will be needed as
production is expanded and the monthly rental charge for this equipment will be $900 per month.
The building is depreciated on the straight-line basis at $9,000 per year.
The company spends $40,000 per year to market the product. Shipping costs for each unit are
$20 per unit. The company plans to liquidate several investments in order to expand production.
These investments currently earn a return of $8,000 per year.
Required:
From the above passage on OFF Company, identify the different costs involved and name under
which cost classification they can be classified. (The identified cost can be placed under more than
one category, e.g., a cost might be a sunk cost, an overhead cost, and a product cost)
CVP ANALYSIS
2. ABC Motors Company is a car dealership. On average, it sells a car for Br. 30,000, which it
purchases from manufacturer for Br. 23,000. Each year, ABC Motors pays Br. 50,000 for
rent and Br. 34,000 for salespersons salaries. In addition to their salaries each salesperson is
paid Br. 1,000 as a commission for each car they sell and ABC Motors also spends Br. 6,000
per year for advertisement.
Required:
a) Compute CM per unit and CM ratio.
b) Compute the number of car ABC Motors should sell each year for BEP and BEP in birr,
using: i) equation method; ii) contribution margin method; and iii) graphic method.
c) Compute the number of car ABC Motors required to sell to earn operating income of Br.
180,000 during the each year using: i) equation method; and ii) contribution margin method.
d) The manager of ABC Motors Company expects that a Br. 20,000 increase in the yearly
advertising budget would increase yearly sales by Br. 300,000. Should the increase in
advertising budget be made?
1
e) Assume the manager of ABC Motors Company concludes that a purchase of high quality car
from manufacturer by increasing the purchase price by Br. 2,000 per car would increase the
number of car sold in the year by 5 cars on the current break even sales and this leads to
increase our profits in a year. Is the manager’s conclusion true?
f) Assume currently ABC Motors Company sells 10 cars per year and interested to increases
their sales by 20% by changing the basic salaries of the employees to commission which
makes the new commission 10% on each car sold. Should the change made?
g) Assume ABC Motors Company budgeted to sells 20 cars for next year.
i. Compute the MoS in unit and in Birr
ii. Compute the MoS percentage
iii. By what amount revenues could be reduced in next year to reach breakeven
revenues?
iv. What would be the MoS percentage if ABC budgeted revenues in next year is Br.
500,000
h) Assuming 25% of tax rate, Compute the number of car ABC Motors required to sell to earn
net income of Br. 67,500 during the each year using: a) equation method; and b) contribution
margin method.
3. For the following figures find the break even volume:
Selling price per unit………………………………………………….. Br. 69.50
Variable costs per unit ……………………………………………… 35.50
Fixed expenses …………………………………………………………. Br. 1,802,000
If this volume (the break even volume) represents 40% capacity, what is the additional profit for
an added production of 40% capacity, the selling price of which is 10% lower for 20% added
capacity production and 15% lower than the existing price for the other 20% added capacity?
4. The Canadian Zinc Company is one of several suppliers of part X to an automobile
manufacturing firm. Orders are distributed to the various die-casting companies on a fairly
even basis; however, the sales manager of the company believes that with a reduction in price
he could secure a 30 percent increase in units sold. The general manager has asked you to
analyze the sales manager’s proposal and submit your recommendation. The following data
are available:
Present Proposed
Unit price………………… $2.50 $2.00
Unit sales ………………… 200,000 units Plus 30%
Variable costs…………… $350,000 Same unit variable cost
Fixed costs ……………….. $120,000 $120,000
Net profit ………………… $ 30,000 ?
Calculate ( a )net profit or loss on the sales manager’s proposal and ( b )unit sales required under
the proposed price to make the original $30,000 profit.
2
5. The Lublock Specialty, Inc., manufactures a product which sells for $5. At present the
company produces and sells 50,000 units per year. Unit variable manufacturing and selling
expenses are $2.50 and $0.50, respectively. Fixed costs are $70,000for factory overhead and
$30,000for selling and administrative activities. The sales manager has proposed that the
price be increased to $6. To maintain the present sales volume, advertising must be
increased. The company’s profit objective is 10 percent of sales.
Calculate ( a ) the additional expenditure the company can afford for advertising and ( b )the new
break-even point in units and in dollars, using the $6 selling price and the additional advertising
outlay from part (a).
6. Assume ABC Motors Company is now seller of car and motorcycle. Information related to
their selling price and related variable costs are as follows.
Car Motorcycle
Selling price (SP) per unit Br. 50,000 Br. 30,000
Variable costs:
Purchase price per unit ………………… Br. 39,000 -
Commission per unit…………………….. 10% of SP Br. 2,000
Manufacturing cost per unit…………… - 20,000
Marketing cost per unit ………………… Br. 1,000 2,000
In the month of January ABC Motors planned sales mix in units is 60% car and 40% motorcycle
and the total fixed costs per month is Br. 270,000.
Required:
i. Compute the break even in unit and in Birr, assuming that the planned sales mix is
attained.
ii. If the sales mix is attained, how many units of each product should the company sale in
order to earn a Br. 216,000 income?
iii. Show how the BEP in units changes if the sales mix on car and motorcycle changes from
3:2 to 2:3 and 4:1.
7. Upper Gibe Agro Industry harvests early season apple for shipment through the South-West
Ethiopia. The apple farm is maintained by a permanent staff of 8 employees and seasonal
workers who pick and pack the apple. The apples are sold in crates containing 60
individually packaged one-quart containers. The selling price is Br. 90 per crate, variable
costs are Br. 80 per crate, and fixed costs are Br. 275,000 per year. In the year 2013, Upper
Gibe Agro Industry sold 45,000 crates.
Required:
a. Write a memo to advice Upper Gibe Agro Industry’s manager on how CVP analyses can
assists her to make decision.
b. Calculate the breakeven point in units and sales revenue.
c. Compute the number of in crates to be sold to earn a target profit of Br. 125,000.
3
d. Management is considering the purchase of several apple-picking machines. This will
increase annual fixed costs to Br. 375,000 and reduce variable costs to Br. 77.50 per crate.
i. Compute the new CM ratio, the new break-even point in both units & dollars, and
margin of safety.
ii. Calculate the effect of this acquisition on operating leverage and explain any change.
iii. Calculate the percentage change, if any, in profits because of this acquisition.
8. A government welfare agency has a budget appropriation of Br 900,000 for the year 2011
with an objective of providing a Br. 5,000 subsidy per annum per person for disabled
citizens. The agency’s cost of operation for the year is Br. 270,000.
Required:
a. How many persons could be helped by the available budget?
b. How many persons could be helped if the budget is reduced by 15% in the coming year
2012?
c. Assume the budget reduction in requirement ‘b’ for year 2012, how much would be the
subsidy per person if the agency wants to continue providing the support for the original
persons as in requirement a?
9. Determine the solution to each of the following independent cases:
1. Hillside College has annual fixed operating costs of Br.12,500,000 and variable operating
costs of Br.1,000 per student. Tuition is Br.8,000 per student for the coming academic
year, with a projected enrollment of 1,500 students. Expected revenues from endowments
and federal and state grants total Br.250,000. Determine the amount the college must
obtain from other sources.
2. The Hillside College Student Association is planning a fall conceIt. Expected costs
(renting a hall, hiring a band, etc.) are Br.30,000. Assuming 3,000 people attend the
concert, determine the break-even price per ticket. How much will the association lose if
this price is charged and only 2,700 tickets are sold?
3. City Hospital has a contract with the city to provide indigent health care on an outpatient
basisˇ for Br.25 per visit. The patient will pay Br.5 of this amount, with the city paying
the balance (Br.20).ˇ Determine the amount the city will pay if the hospital has 10,000
patient visits.ˇ
4. A civic organization is engaged in a fund-raising program. On Civic Sunday, it will sell
newspapers at Br.1.25 each. The organization will pay Br.0.75 for each newspaper. Costs
of the necessary permits, signs, and so forth are Br.500. Determine the amount the
organization will raise if it sells 5,000 newspapers.
5. Christmas for the Needy is a civic organization that provides Christmas presents to
disadvantaged children. The annual costs of this activity are Br.5,000, plus Br.10 per
present. Determine the number of presents the organization can provide with Br.20,000.
4
DECISION MAKING
10. Consider the following details of the income statement, on absorption costing basis of
Samson Company for the year just ended December 31, 20X4
Total per unit
Sales (1,000,000 units) Br 20,000,000 Br 20
Cost of Goods Sold 15,000,000 15
Gross Margin Br 5,000,000 Br. 5
Selling and Adm. Expenses 4,000,000 4
Operating Income Br. 1,000,000 Br. 1
Samson’s fixed manufacturing costs were Br 3 million and fixed selling and administrative
expenses were Br 2.9 million. Near the end of the year, Ethio Company offered Samson Br 13
per unit for 100,000 unit special order. The special order would not affect Samson‘s regular
business in any way. Furthermore, the special sales order would not affect total fixed costs and
would not require any additional variable selling and administrative expenses.
Required:
a. Should Samson accept or reject the special order?
b. Could the special order affect Samson’s regular business?
11. The MARATHON Company manufactures medals for winners of athletic events and other
contests. Its manufacturing plant has the capacity to produce 10,000 medals each month.
Current production and sales are 7,500 medals per month. The company normally charges
Br.150 per medal. Cost information for the current activity level is as follows:
Variable costs that vary with number of units produced:
Direct materials…………………………………………………… Br. 262,500
Direct manufacturing labor………………………………………. 300,000
Variable costs (for setups, materials handling, quality control, and so on)
that vary with number of batches: (150 batches x Br.500 per batch)……… 75,000
Fixed manufacturing costs………………………………………………… 275,000
Fixed marketing costs……………………………………………………… 175,000
Total costs…………………………………………………………. Br.1,087,500
MARATHON has just received a special one-time-only order for 2,500 medals at Br.100 per
medal from Great Run. Accepting the special order would not affect the company’s regular
business. MARATHON makes medals for its existing customers in batch sizes of 50 medals
(150 batches x 50 medals per batch = 7,500 medals). The special order requires MARATHON to
make the medals in 25 batches of 100 each.
Required:
5
a. On financial considerations alone, should MARATHON accept this special order? Show your
calculations.
b. Suppose plant capacity were only 9,000 medals instead of 10,000 medals each month. The
special order must either be taken in full or be rejected completely. On financial
considerations alone, should MARATHON accept the special order? Show your calculations.
c. What other factors should MARATHON consider in deciding whether to accept the one-time
special order?
12. Belt and Braces Ltd makes a single product which sells for Br 20. It has a full cost of Br 15
which is made up as follows:
Direct Material Br 4
Direct Labor 6
Variable Overhead 2
General Fixed Overhead 3
The labor force is currently working at 90% of capacity and so there is a spare capacity for 2,000
units. A customer has approached the company with a request for the manufacture of a special
order of 2,000 units for which he is willing to pay Br. 25,000. Assess whether the contract should
be accepted or not.
13. Eyoha Department store has three major departments: groceries, general merchandise, and drugs.
Management is considering dropping groceries, which have consistently shown a net loss, as
shown below on statement of departments’ profitability analysis of Eyoha.
Departments
Groceries General Drugs Total
Merchandise
Sales Br. 100,000 Br. 8,0000 Br. 10,000 Br.190,000
Variable CGS &
Expenses 80,000 56000 6,000 142,000
Contribution Br. 20,000 Br. 24000 Br. 4,000 Br. 48,000
margin
Fixed expenses:
Avoidable Br. 15,000 Br. 10,000 Br. 1,500 Br. 26,500
Unavoidable 6,000 10,000 2,000 18,000
Total fixed Br.21,000 Br. 20,000 Br.3,500 Br. 44,500
expenses
Operating income Br. (1,000) Br.4,000 Br. 500 Br. 3,500
(loss)
Required:
6
a) Which alternative would be recommended if the only alternatives to be considered are
dropping or continuing the grocery department? Assume that the total assets would be
unaffected by the decision and the space made available by dropping groceries would
remain idle.
b) Refer the income statement presented above. Assume that the space made available by
dropping groceries could be used to expand the general merchandise department. The space
would be occupied by merchandise that increase sales by Br. 50,000, generate a 30%
contribution margin percentage and have additional avoidable fixed costs of Br.7, 000.
Should Eyoha discontinue grocery and expand merchandise department?
14. Talent, Inc. produces three products. Data concerning the selling prices and unit costs of the
three products appear below:
Products
A B C
Selling price Br. 120 Br. 40 Br. 80
Variable costs 50 20 40
Fixed costs 40 15 30
Tapping machine time (minutes) 7 4 2
Fixed costs are applied to the products on the basis of direct labor hours and demand for the three
products exceeds the company's productive capacity. The tapping machine is the constraint, with
only 2,400 minutes of tapping machine time available this week.
Required:
a. Given the tapping machine constraint, which product should be emphasized? Support your
answer with appropriate calculations.
b. Assuming that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to pay for an
additional hour of tapping machine time?
15. SUDA Corporation has four operating divisions. The budgeted revenues and expenses for
each division for 2014 follow:
Divisions
W X Y Z
Revenues Br. 180,000 Br. 240, 000 Br. 310,000 Br.590,000
Cost of goods sold Br. 120,000 Br. 100,000 Br. 260,000 Br. 240,000
Selling and general expenses Br. 70,000 Br. 90,000 Br. 75,000 Br. 200,000
Further analysis of costs reveals the following percentages of variable costs in each division
7
W X Y Z
Cost of goods sold 80% 90% 70% 90%
Selling and general expenses 50% 60% 50% 60%
Mr. ANA, top management of SUDA Corporation, is very concerned about the unprofitable
divisions (W and Y) and is considering closing them for the year 2014 and he knows that closing
down any division would result in savings of 50% of the fixed costs of that division.
Required:
a. Which alternative would be recommended if the only alternatives to be considered are
dropping or continuing? Assume that the total assets would be unaffected by the decision
and the space made available by dropping “W” and “Y” divisions would remain idle.
Show your computation.
b. Refers to the budgeted revenues and expenses for each division of SUDA Corporation for
2014 and assume that the space made available by dropping “Y” division could be used
to expand the “W” division. And as a result of this, the revenues of “W” division will be
increased by 100% which can generate a 30% contribution margin percentage with no
additional fixed costs. Should SUDA discontinue “Y” division and expand “W” division?
Show your computation.
c. What other factors should the top management of SUDA consider before making a
decision?
16. Jimma Computers manufactured two products, desktop computer and notebook computer. The
Company’s scarce resource is a data chip that it purchases from a supplier. Each desktop
computer requires one chip and each notebook computer requires three chips. Currently, the firm
has access to only 5,100 chips per month to make either desktop or notebook computers or some
combination of both. Demand is above 5,100 units per month for both products and there is no
variable selling or administrative costs related to either product. The desktop’s Br. 650 selling
price less its Br. 545 variable cost provides a contribution margin of Br. 105 per unit. The
notebook’s contribution margin per unit is Br.180 (Br.900 selling price minus Br.720 variable
cost). Fixed annual overhead related to these two product lines totals Br. 6,570,000 and is
allocated to products for purposes of inventory valuation. Fixed overhead, however, does not
change with production levels within the relevant range
Required: On the bases of the above information which product is more profitable and on which
products should the firm spend its resources?
17. Great Company manufacturers 60,000 units of part XL – 40:
Total Costs Cost Per
8
60,000 Units Unit
Direct material Br 480,000 Br 8
Direct labor 360,000 6
Variable factory overhead (FOH) 180,000 3
Fixed FOH 360,000 6
Total manufacturing costs Br 1,380,000 Br 23
Another manufacturer has offered to sell the same part to Great for Br 21 each. The fixed
overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The entire
fixed overhead would continue if the Great Company bought the component except that the cost
of Br 120,000 pertaining to some supervisory and custodial personnel could be avoided.
Required:
a. Should the parts be made or bought? Assume that the capacity now used to make parts
internally will become idle if the pats are purchased?
b. Assume that the capacity now used to make parts will be either (i) be rented to nearby
manufacturer for Br 60,000 for the year or (ii) be used to make another product that will yield
a profit contribution of Br 250,000 per year. Should the company purchase them from the
outside supplier?
18. The Weaver Company produces gas grills. This year’s expected production is 20,000 units.
Currently, Weaver makes the side burners for its grills. Each grill includes two side burners.
Weaver’s management accountant reports the following costs for making the 40,000 burners:
Cost per unit Cost for 40,000units
Direct materials Br.5.00 Br.200,000
Direct manufacturing labor 2.50 100,000
Variable manufacturing overhead 1.25 50,000
Inspection, setup, materials handling 4,000
Machine rent 8,000
Allocated fixed costs of plant, taxes, and insurance 50,000
Total costs Br.412,000
Weaver has received an offer from an outside vendor to supply any number of burners Weaver
requires at Br.9.25 per burner. The following additional information is available:
i. Inspection, setup, and materials-handling costs vary with the number of batches in which the
burners are produced. Weaver produces burners in batch sizes of 1,000 units. Weaver will
produce the 40,000 units in 40 batches.
ii. Weaver rents the machine used to make the burners. If Weaver buys all of its burners from the
outside vendor, it does not need to pay rent on this machine.
Required:
a. Assume that if Weaver purchases the burners from the outside vendor, the facility where the
9
burners are currently made will remain idle. Should Weaver accept the outside vendor’s offer
at the anticipated volume of 40,000 burners? Show your calculations.
b. The sales manager at Weaver is concerned that the estimate of 20,000 grills may be high and
believes that only 16,000 grills will be sold. Production will be cut back, freeing up work
space. This space can be used to add the rotisserie attachments whether Weaver buys the
burners or makes them in-house. At this lower output; Weaver will produce the burners in 32
batches of 1,000 units each. Should Weaver purchase the burners from the outside vendor?
Show your calculations.
STANDARD COSTING SYSTEM AND VARIANCE ANALYSIS
19. Sunset company manufactures only one product, folding chairs and since Sunset sells its
product to wholesalers, there is no beginning or ending inventory; and incurs only
manufacturing function costs. The budgeted costs for each cost categories for March, 2013
are as follows:
DM costs per chair …………… Br. 150
DL costs per chair ………. 100
VMOH costs per chair……. 50
The number of chairs manufactured is the cost driver for all variable-manufacturing costs. The
static budget for March, 2013 is based on selling 20,000 chairs and Budgeted selling price of Br.
340 per chair. Budgeted manufacturing fixed costs are Br. 320, 000 for the given relevant range.
The flexible budget performance report for Enterprises Inc. for March follows.
Actual FBV Flexible
Cost budget
Output units 18,500 0 18,500
Revenues Br. 6,475,000 Br.185,000 F Br. 6,290,000
Variable costs:
Direct materials Br. 2,997,000 Br. 222,000 U Br. 2,775,000
Direct labor 2,035,000 185,000 U 1,850,000
Variable MOH 900,000 25,000 F 925,000
Br. 5,932,000 Br. 382,000 U Br. 5,550,000
Contribution margin Br. 543,000 Br. 197,000 U Br. 740,000
Fixed MOH 300,000 0 300,000
Operating income Br. 243,000 Br. 197,000 U Br. 440,000
During March, 2013, data related to standard and actual for Sunset's direct input costs and
quantity used for a chair are as follows.
The standard per chair material and labor costs are:
o Direct material: 10 sqf @ Br. 15 per sqf
o Direct labor: 5 hours @ Br.20 per hour
Actual data for May are as follows:
10
o Direct material purchased and used: 222,000sqf @ Br.13.50 per sqf
o Direct labor hours used in March, 2013 was 92,500 hours for the total chairs produced.
Required: Compute each of the following variances:
a. Direct materials price and usage variances.
b. Direct labor rate and efficiency variances.
20. Sagittarius Corp. has established the following standards for the prime costs of one of its chief
product, dart boards.
Standard Qty standard Price (Rate) Total Standard cost
Direct material 8.5 pounds Br.1.80/pound Br.15.30
Direct labor 0.25 hour 8.00/hour 2.00
During May, Sagittarius purchased 160,000 pounds of direct material at a total cost of Br.304,
000. The total wages for May were Br.42, 000, 90% of which were for DL. Sagittarius
manufactured 19,000 dart boards during May; using 142,500 pounds of direct material & 5,000
direct labor hours.
Required: Compute the following variances for May.
a. Direct materials price and usage variances.
b. Direct labor rate and efficiency variances.
21. Poly Containers makes 500-gallon plastic water tanks for a variety of commercial uses. The
standard per unit material and labor costs are as follows:
Direct material: 10 pounds @ Br. 15 per pounds …………………….. Br.150
Direct labor: 5 hours @ Br.20 per hour ………………………… 100
Production is assumed to occur evenly throughout the year and during 2012, the company
produced 15,000 tanks. Actual data for 2012 are as follows:
Direct material purchased: 160,000 pounds @ Br.13 per pound
Direct material used: 146,000 pounds (all from 2012 purchases)
Total labor cost incurred in 2012:Br. 176,000 for 80,000 hours.
Required: Calculate the following for Poly Containers for 2012.
a. Direct materials price and usage variances.
b. Direct labor rate and efficiency variances.
22. YEROSON is the owner of Better Bikes, a company that produces high quality cross-country
bicycles. Better Bikes participates in a supply chain that consists of suppliers, manufacturers,
distributors, and elite bicycle shops. For several years Better Bikes has purchased titanium,
(major raw material for Bicycle), from suppliers in the supply chain. Better Bikes uses
titanium for the bicycle frames because it is stronger and lighter than other metals and
therefore increases the quality of the bicycle. Earlier this year, Better Bikes hired KOKET, a
recent graduate from Jimma University, as purchasing manager. KOKET believed that he
could reduce costs if he purchased titanium from an online marketplace at a lower price.
11
The flexible budget performance report for Better Bikes for March follows.
Actual Flexible FBV
Costs Budget Costs
Number of Bicycles ……………... 5,000 5,000
Total costs of direct material…….. Br. 104,125 Br. 100,000 Br. 4,125 U
Direct manufacturing labor costs... 80,500 75,000 5,500 U
The standard direct cost for producing a bicycle is as follows:
Direct materials, titanium (4 pounds x Br. 5.00 per pound) . . . Br. 20
Direct labor (1.25 hours x Br.12.00 per hour). . . . . . . . . . . 15
Actual cost of materials (titanium) is based on 21,250 pounds of direct materials purchased and
used at Br.4.90 per pound; actual cost of assembly is based on 7,000 labor hours.
Required:
a. Discuss the benefit of standard costing system for Better Bikes Company.
b. Compute the direct materials usage and direct labor efficiency variances.
c. What factors can explain the variances identified in requirement b? Could any other
variances be affected?
d. Was switching suppliers a good idea for Better Bikes? Explain why or why not.
23. The Scent Makers Company produces perfume. To make this perfume, Scent makers uses three
different types of fluids: Dycone, Cycone, & Bycone are used in standard proportions of 4/10,
3/10, & 3/10 and their standard costs are Br. 6.00, Br. 3.50 & Br. 2.50 per unit, respectively. The
chief engineer reported that for the past few months the standard yield has been 80% on 100
pints of mix. The Company maintains a policy of not carrying any direct material, as inventory
storage space is costly.
Last week the company produced 75,000 pints of perfume at a total direct material cost of Br.
449,500. The actual number of pints used and costs per unit for the three fluids are as follows:
Material Actual Pints Cost/Pint
Dycone 45,000 Br. 5.50
Cycone 35,000 4.20
Bycone 20,000 2.75
Required
a. Compute the total direct material yield & mix variances for the last week.
b. Compute the total direct material price & usage variances for perfume made in the last week.
24. Maleda Café has three direct labor categories: Skilled Labor, Semi-skilled Labor, and Unskilled
Labor. The standard rates of these labor categories were: Skilled Labor, Br. 10.30 per hour;
Semi-skilled Labor, Br. 8.70 per hour; and the Unskilled Labor, Br. 6.50 per hour for the month
12
of May2012. The month’s standard hours of direct labor per pizza, which is the typical product
of the company, have been set as follows:
Minutes
per pizza
Skilled Labor: 4
Semi-skilled Labor: 7
Unskilled Labor: 10
During May, Maleda Café sold 40,000 pizzas. The actual labor hours used and costs incurred are
hereunder:
Hours Costs
Skilled Labor: 2,500 Br. 28,500
Semi-skilled Labor: 4,750 42,275
Unskilled Labor: 6,700 45,225
Required: Compute each of the following variances:
a. Labor cost variance
b. Labor rate and efficiency variance
c. Labor mix and yield variance
25. Rock Solid Engineering Company compares actual results with a flexible budget. The standard
DL rates used in the flexible budget are established each year at the time the annual plan is
formulated and held constant for the entire year. The standard hours allowed for the actual output
of insurance claims for April in a claims department are shown in the following schedule:
Labor Classes Standard Rate/Hrs Standard hrs for Actual output
Class III Br. 8.00 500 Hrs
Class II 7.00 500
Class I 5.00 500
Required: compute:
a. DL rate & efficiency Variances
b. DL mix & Yield Variances
26. ABC limited manufacturing a simple product using material A and material B, the standard mix
of which 60% @ Br. 20 per kg and 40% @ Br. 10 per kg, respectively and normal loss in
production is estimated to be 20% of input. Due to shortage of material A in April, the standard
mix changed and in April, 105kg @ Br. 20 per kg of material A, and 95kg @ Br. 9 per kg of
material B were used to produce the output of 165kg.
Required
a. Compute the total direct material yield & mix variances.
13
