Monday, December 12, 2016

Halo Enterprize Solution Cost Accounting Management Information

Question:

Halo Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all materials purchased during the period were used in production:

Direct materials:
Standard price per pound: $9
Actual price per pound: $8
Price variance: $20,000F
Total of direct-material variances: $2,000F

Direct labor:
Actual hours worked: 40,000
Actual rate per hour: $15
Efficiency variance: $28,000F
Total of direct-labor variances: $12,000U

Halo completed 12,000 units.
 
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity variance, (3) direct-labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.

Another version of the question as found in the Management Information Question of Institute of Chartered Accountants of Bangladesh May-June 2016 Knowledge Level Question

Kamal Manufacturing recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all materials purchased during the period were used in production:
 
Direct materials:
Standard price per pound: Tk.9
Actual price per pound: Tk.8
Price variance: Tk.20,000F
Total of direct-material variances: Tk.2,000F
 
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: Tk.15
Efficiency variance: Tk.28,000F
Total of direct-labor variances: Tk.12,000U

Kamal Manufacturing completed 12,000 units.
 
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity variance, (3) direct-labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.


Solution:

in brief:
 (1) actual materials used 20,000 pounds, 
(2) direct-material quantity variance Tk. $ 18,000U 
(3) direct-labor rate variance Tk. $ 40,000U 
(4) standard labor rate per hour Tk. $ 14, and 
(5) standard labor time per finished unit 3.5hours
 



IN DETAILS

(1) actual materials used
We know, Price Variances = AQ(AP-SP)
or, Tk. 20,000F = AQ(8-9)
or -20,000 = AQ(-1)
or AQ = 20,000
So, actual materials used 20,000 pounds


Note THAT: in equation form, Favorable is negative and Unfavorable is positive.


(2) direct-material quantity variance
We know, Price variance + Material variance(MV) = Total direct-material variance(TV)
or, -20,000 + MV = -2,000
So, MV = 18,000
So, direct-material quantity variance tk. 18,000 Unfavorable


(3) direct-labor rate variance
We know,
Labor Rate Variance (LV) + Efficiency variance = Total direct-labor variance
or, LV + (-28,000) = 12,000
so, LV = 40,000
so, direct-labor rate variance Tk. 40,000 Unfavorable


(4) standard labor rate per hour
We know,
Labor rate variance = AH(AR-SR)
or, 40,000 = 40,000 (15-SR)
or, 15-SR = 1
So, SR = 15-1=14
So, standard labor rate per hour Tk. 14


(5) standard labor time per finished unit
We know, Efficiency variances = SR(AH-SH)
or, -28,000 = 14(40,000-SH)
or, 40,000-SH = -2,000
So, SH = 42,000
Units produced 12,000 units
So, standard labor time per finished unit = (42,000/12,000) Tk. = 3.5 Tk.




Solution provided by Sazzad Hossain, MBA CSCA
A graduate in Accounting & Information Systems from University of Dhaka (BBA & MBA)
And a Chartered Accountants Student as of December 12, 2016
You can contact him by: sazzadais@gmail.com


Thanks







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