ASSIGNMENT # 1

SPRING – 2024

BS- ACCOUNTING AND FINANCE

ADVANCE MANAGERIAL ACCOUNTING

Q1.

LIMCO Inc. prepared following standards during start of the year for its product SMIRF;

Material 3kgs/unit @ $2.3/kg

Labour 1.25 hours @ $12/hr

Actual production was 122,000 units but only 100,000 units were sold.

Actual cost details are:

Material 341,600 kgs @ $840,336

Labour 152,000 hours @ $ 1,915,200

After the end of three-month period, it was decided to revise the standard costs retrospectively to take
account of the following:

1. A 3% increase in direct material price per kg.

2. A labour rate increase of 4%.
3. A new machine has been installed which would decrease 10% labour time required to produce
single unit and gives and expected saving of 5% in material usage.

REQUIRED:

a. Prepare revise standard cost of material and labour.

b. Calculate planning and operational variances of material rate and usage variances.
c. Calculate planning and operational variances of labour rate and efficiency variances.
d. Explain the significance of separating variances into planning and operational elements and
the problems which could arise.