Alga Co a medium sized company, produces a single product in its one overseas factory. For control purposes, a standard costing system was recently introduced.
The standards set for the month of May were as follows:
Production and sales 16,000 units
Selling price (per unit) $140
Material 003 6 kilos per unit at $12.25 per kilo
Material GL60 3 kilos per unit at $3.20 per kilo
Labour 4.5 hours per unit at $8.40 per hour
Overheads (all fixed) $86,400 per month.
(They are not absorbed into the product costs)
The actual data for the month of May is as follows:
Produced 15,400 units which were sold at $138.25 each.
Materials: Used 98,560 kilos of material 003 at a total cost of $1,256,640 and used 42,350 kilos of material GL60 at a total cost of $132,979.
Labour: Paid an actual rate of $8.65 per hour to the labour force. The total amount paid out, amounted to $612,766.
Overheads (all fixed): $96,840.
Required: A. Prepare a standard costing profit statement, and a profit statement based on actual figures for the month of May.
B. Prepare a statement of the variances which reconciles the actual with the standard profit or loss figure. (Mix and yield variances are not required.)
C. Explain briefly the possible reasons for inter-relationships between material variances and labour variances.
D. State TWO possible causes of an adverse labour rate variance.