The document calculates material price, usage, and total variances as well as labor rate, efficiency, and total variances for products SLIM and SMART. For SLIM, the material price and usage variances were favorable due to decreased price and more efficient production methods. However, the labor rate and efficiency variances were unfavorable possibly because standards were too loose or equipment was inefficient. For SMART, the material usage and total variances were favorable likely due to machinery issues while the price and labor rate variances were unfavorable possibly from incorrect standards or changed rates.
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Costing case study pp
1.
2. QUESTIONS
a) Calculate the following variances for product SLIM and SMART :
i. Material Price Variance
ii. Material Usage Variance
iii. Total Material Variance
iv. Labour Rate Variance
v. Labour Efficiency Variance
vi. Total Labour Variance
3. SLIM
Material Price Variance
MPV = ( AP - SP ) x AQ
= ( RM 4.90 – RM 5.00 ) X 8,200 kg
= RM 820 (F)
Material Usage Variance
MUV = ( AQ - SQ ) X SP
= ( 7,380 kg – 7,800 kg) X RM 5.00
= RM 2,100 (F)
Total Material Variance
MCV = MPV + MUV
= RM 820 ( F ) + RM 2,100 ( F )
= RM 2,920 (F)
4. SLIM
Labour Rate Variance
LRV = ( AR – SR ) X AH
= ( RM 7.20 – RM7.00 ) X 12,300 hours
= RM 2,460 (UF)
Labour Efficiency Variance
LEV = ( AH – SH ) x SR
= ( 12,300 hours - 11,700 hours) X RM 7
= RM 4,200 (UF)
Total Labour Variance
LCV = LRV + LEV
= RM 2,460 (UF) + RM 4,200 (UF)
= RM 6,660 (UF)
5. SMART
• Material Price Variance
MPV = ( AP - SP ) X AQ
= ( RM 6.50 – RM 6.00 ) X 10,000 kg
= RM 5,000 (UF)
• Material Usage Variance
MUV = ( AQ - SQ ) X SP
= ( 9,000 kg – 16,650 kg ) X RM 6.00
= RM 45,900 (F)
• Total Material Variance
MCV = MPV + MUV
= RM 5,000 (UF) + RM 45,900 (F)
= RM 40,900 (F)
6. SMART
• Labour Rate Variance
LRV = ( AR – SR ) X AH
= ( RM 8.00 – RM7.50 ) X 13,500 hours
= RM 6,750 (UF)
• Labour Efficiency Variance
LEV = ( AH – SH ) X SR
= ( 13,500 hours - 19,425 hours ) X RM 7.50
= RM 44,437.50 (F)
• Total Labour Variance
LCV = LRV + LEV
= RM 6,750 (UF) + RM 44,437.50 (F)
= RM 37,687.50 (F)
7. QUESTIONS
b) State TWO (2) possible reasons for each of the
Favourable (F) or Unfavourable (UF) variances above.
8. SLIM
Material Price Variance (MPV) : Favourable (F)
1. Decrease in price
2. Inefficient buying
Material Usage Variance (MUV) : Favourable (F)
1. Method of production
2. Handling in material
Total Material Variance (MCV) : Favourable (F)
1. Decrease in price
2. Method of production
9. SLIM
Labour Rate Variance (LRV) : Unfavourable (UF)
1. Paying workers at a lower rate (in standard rate)
2. Working overtime
Labour Efficiency Variance (LEV) : Unfavourable (UF)
1. Standard sets too loose
2. Inefficient equipments
Total Labour Variance (LCV) : Unfavourable (UF)
1. Working overtime
2. Standard sets too loose
10. SMART
Material Price Variance (MPV) : Unfavourable (UF)
1) Standard price set was too low
2) Increase in price
Material Usage Variance (MUV) : Favourable (F)
1) Condition of machinery
2) Nature of material
Total Material Variance (MCV) : Favourable (F)
1) Condition of machinery
2) Nature of material
11. SMART
Labour Rate Variance (LRV) : Unfavourable (UF)
1. Time taken for the work
2. Change in rate
Labour Efficiency Variance (LEV) : Favourable (F)
1. Standard sets too tight
2. Lost time due to machine brokedown
Total Labour Variance (LCV) : Favourable (F)
1. Standard sets too tight
2. Lost time due to machine brokedown