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Question
a) A company manufactures office chairs for different categories of clients. From the information
provided below, you are required to analyze the cost and sales variances and prepare
an operating statement incorporating the result of your analysis.

Standard/Budgeted data:
Unit variable costs:
- Direct material                                6 metres at 50/= per meter                        = 300
- Direct labour                                   2 hours at 80/= per hour                            =160
- Variable overhead                          60/= per direct labour hour                          =120
TOTAL                                                                                                                    580

Budgeted fixed overhead for the year UGX 250,000 and the standard selling price is 700/= per unit.
The company’s plan is to produce 5,000 units and the company’s budgeted operating statement is
shown below:
Budgeted operating statement
UGX
Sales (5,000 units x 700)                                                        3,500,000
Less cost of sales:
Variable production costs (5,000 x 580)                                  (2,900,000)

Budgeted contribution                                                                600,000
Less fixed factory overhead costs                                             (250,000)
Budgeted profit                                                                           350,000

Actual results are presented in the actual operating statement below:
Sales                           (5,500 units x 680/=)                                                  3,740,000

Less cost of sales:
Direct materials           32,000 metres x 45/=                              1,440,000

Direct labour cost       12,000 hours x 75/=                                    900,000
Variable overheads   12,000 hours x 65/=                                     780,000    (3,120,000)
Actual contribution                                                                                              620,000
Less fixed factory overhead costs                                                                      (230,000)
Actual profit                                                                                                          390,000

 
Required:
Calculate all the relevant variances and reconcile them


b) A Company planned to produce one unit of product B by using standard mixes of raw materials
X, Y and Z in the following proportions and prices
Material Standard                     Rate per Kg (in Shs)                             Qty (in Kgs)
X                                                    40                                                           225
Y                                                    80                                                            200
Z                                                   120                                                           125



TOTAL                                                                                                            550
                                                                                             Standard Output 500
                                                                                                  Standard Loss 50
10,000 Kgs of the finished product have been actually produced during the period for which the
actual quantities of material used and the prices paid are as under.
Material       Purchase rate/Kg (Shs)                  Qty used (Kgs)
X                             38                                                  5,000
Y                              84                                                  4,250
Z                              32                                                  2,250


TOTAL                                                                          11,500 KGS
Required: Calculate the following variances
(i) Material cost variance (MCV)
(ii) Material Price Variance (MPV)
(iii) Material Usage Variance (MUV)
(iv) Material Mix Variance (MMV)
(v) Material Yield Variance (MYV

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