Exercise 33

1. Calculation of the production cost of the 19000units of SOPHIE completed

The overhead absorbtion table

Elements supplying Workshop 1 Workshop 2 distribution

Secondary totals 210000 234800 256000 237000
Nature of work unit Kg of material Hour of Hour machine Cost of production
bought direct labour of output sold
Number of work unit 60000 5200 4800
Cost of work unit 3.5 45 53.333

Purchase cost of raw materials

Elements Material M Material N

quantity Unit price amount quantity Unit price amount
Raw materials 1/12 15000 24 360000 3000 30 900000
Raw materrials 15/12 15000 24.5 367500
Indirect charges 30000 3.5 105000 3000 3.5 105000
Production cost 30000 27.75 832500 30000 33.5 1005000

Inventory of raw materials

Elements Material M Material N

quantity Unit price amount quantity Unit price amount
Opening stock 6000 28 168000 10000 32 320000
Purchases 30000 27.75 832500 30000 33.5 1005000
WAUC 36000 27.79 1000500 40000 33.125 1325000
Consumption 27000 27.79 750375 35000 33.125 1159375
Final stock 9000 27.79 250125 5000 33.125 165625

Production cost of SO

Elements quantity Unit price amount

Raw materials 27000 27.79 750375
Direct labour 5200 65 338000
Indirect expenses 5200 45 234000
Production cost 20000 66.11875 1322375
 Production cost of SOPHIE

Elements Quantity Unit price amount

Intermediate SO 20000 66.11875 1322375
Raw material N 35000 33.125 1159375
Direct labour 4800 70 336000
Indirect expenses 4800 53.333 256000
Production cost 19000 161.7763 3073750

3. Presentation of the unit pre- established cost of SOPHIE.

Elements Quantity Unit price Amount

Material M 1.35 27.5 37.125
Direct labour WS 1 0.25 65 16.25
Indirect charges WS 1 0.25 47 11.75
Unit production cost WS 1 1 65.125 65.125
Material N 1.7 34 57.8
Direct labour WS 2 0.235 68 15.98
Indirect charges 0.235 52.3404 12.3
Unit pdtion cost of SOPHIE 1 151.205 151.205

4. DETERRMINATION OF THE REAL PRODUCTION IN DECEMBER

Completed production = 19000

Initial product in process = 2000 for 275000 thus the unit price = 275000/2000 =137.5

Raw materials = (100/100 x 137.5) = 137.5

Direct labour = (60/100 x 137.5) = 82.5

Indirect charges = (70/100 x 137.5) = 55

Topal = (137.5 +82.5 + 55) = 275

Closing product in process =3000 for 438100 thus the unit price =438100/3000 = 146.03

Raw materials = (100/100 x 146.033) = 146.033

Direct labour = ( 80/100 x 146.033) = 116.8266667

Indirect charges = (70/100 x 146.033) = 102.2233333

Final product in process =( 146.033+116.8266667+102.2233333) = 365.083

 Real production in December =( 19000 +275) – 365.083 =18910

5. Presentation of the table of comparism between the real cost and the pre- established cost.

Elements Real costs Pre- established costs Va riances

quantity Unit amount quantity Unit price amount - +
price
Intermediate 2000 66.1187 1322375 18910 65.125 1231513.75 _ 90861.25
product 5
Raw material N 35000 33.125 1159375 32147 34 1092998 66377
Direct lobour 4800 70 336000 4443.8 68 302181.8 33818.2
Indirect charges 4800 53.333 256000 4443.8 52.34 232590.383 23409.61
Global variance 214466.0
(unfavourable) 6

6. Analysis of variances on indirect expenses

Formulae

Variance on quantity = real quantity ( real price –pre- established price)

Variance on price = pre- established (real price – pre-established quantity)

Total variance = variance on quantity + variance on price

Variance on raw materrials

Variance on quantity = 35000 (33.125- 34) = -30625(favourable)

Variance on price = 34 ( 35000 – 32147) = 97002(unfavourable)

Total variance = -30625+ 97002 = 66377 (unfavourable)

variance on direct labour

variance on quantity = 4800 (70 – 68) = 9600 ( unfavourable)

variance on price = 68 ( 4800 – 4443.8) = 24221.6 ( unfavourable)

total variance = 9600 + 24221.6 = 33821.6 (unfavourable)

variance on intermediate product

variance on quantity = 20000 (66.11875 – 65.125) = 19875 (unfavourable)

variance o price = 65.125 (20000 – 18910) = 70986.25 (unfavourable)

total variance = 19875 + 70986.25 = 90861.25 ( unfavourable)