Chapter 9 - Standard costing, flexible budgeting and variance analysis

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Information needed to complete quiz

Chapter 17

Question 3

Prideaux Fabrications Limited has the following budget for November 20X7:

	£
Sales: 600 units x £75	45 000

Costs
Direct materials: 600 x (4kg x £7)	(16 800)
Direct labour: 600 x (1 hour x £8)	(4 800)
Production overhead	(12 000)
	11400
Selling and administrative overhead	(6000)
Net profit	5400

Questions 4 – 9

Quayle Farrar Limited produces a standard size metal railing unit. Its budget
for April 20X6 is as follows:

	£
Sales: 3000 units x £250	750 000

Direct materials: 3000 x (8kg x £7)	(168 000)
Direct labour: 3000 x (2.5 hours x £6)	(45 000)
Production overhead	(155 000)
	382 000
Other overheads	(125 000)
Net profit	257 000

Quayle Farrar Limited does not absorb production overheads using an overhead
absorption rate. It may be assumed that all of its overheads are fixed in nature.

The company’s actual results for the month are as follows:

	£
Sales: 2950 x £255	752 250
Direct materials: 2950 x (7.2kg x £7.50)	(159 300)
Direct labour: 2950 x (2.4hours x £6)	(42 480)
Production overhead	(162 000)
	388 470
Other overheads	(130 000)
Net profit	258 470

The process of responsibility accounting ensures that:
1. problems identified by variances are tracked to their source
2. there is a strict management hierarchy of responsibility
3. standard costing systems are implemented properly
4. management accountants are responsible for calculating variances
Standard costing is a system of costing that can be used in business environments where:
1. a repetitive series of standardised operations are carried out
2. each product is customised to purchaser requirements
3. there are likely to be large fluctuations in costs
4. goods are supplied in standard sizes only
Prideaux Fabrications Limited does not absorb production overhead using an overhead absorption rate and it may be assumed that all of its overheads are fixed in nature. If the company flexes its budget for 700 units what will be the revised net profit figure?
1. £12 900
2. £7 300
3. £6 300
4. £9 300
Quayle Farrar Limited, see information. What is the sales profit volume variance for the month?
1. £1470 (A)
2. £1470 (F)
3. £8950 (A)
4. £8950 (F)
Quayle Farrar Limited, see information. What is the sales price variance for the month?
1. £2250 (A)
2. £14 750 (A)
3. £14 750 (F)
4. £2250 (F)
Quayle Farrar Limited, see information. What is the direct materials price variance for the month?
1. £10 620 (A)
2. £5 900 (A)
3. £5 900 (F)
4. £10 620 (F)
Quayle Farrar Limited, see information. What is the direct materials quantity variance for the month?
1. £16 520 (A)
2. £16 520 (F)
3. £17 700 (A)
4. £17 700 (F)
Quayle Farrar Limited, see information. What is the direct labour rate variance for the month?
1. £720 (F)
2. £0
3. £1770 (F)
4. £2520 (F)
Quayle Farrar Limited, see information. What is the direct labour efficiency variance for the month?
1. £1050 (A)
2. £1770 (F)
3. £1050 (F)
4. £1770 (A)
Which of the following is not a valid possible cause of direct materials quantity variances?
1. obtaining quantity discounts for large orders of materials
2. increased/decreased level of quality checks on the production process
3. poor functioning of machinery giving rise to excessive wastage
4. better or worse quality of materials purchased

Chapter 9 - Standard costing, flexible budgeting and variance analysis

Multiple-choice exercise