THE INSTITUTE OF FINANCE MANAGEMENT
PERFORMANCE MANAGEMENT
BAC III & BAIT III – 2025/26
STANDARD COSTING & VARIANCE ANALYSIS TUTORIAL QUESTIONS
1. The School Uniform Company (FUNDI Co) manufactures school uniforms. One of its largest
contracts is with the Girls’ Private School Trust (GPST), which has 35 schools across the
country, all with the same school uniform.
After a recent review of the uniform at the GPST schools, the school’s spring/summer dress
has been re-designed to incorporate a dropped waistband. Each new dress now requires 2·2
metres of material, which is 10% more material than the previous style of dress required.
However, a new material has also been chosen by the GPST which costs only TZS 2·85 per
metre which is 5% cheaper than the material used on the previous dresses. In February, the
total amount of material used and purchased at this price was 54,560 metres.
The design of the new dresses has meant that a complicated new sewing technique needed to
be used. Consequently, all staff required training before they could begin production. The
manager of the sewing department expected each of the new dresses to take 10 minutes to
make as compared to 8 minutes per dress for the old style. FUNDI Co has 24staff, each of
whom works 160 hours per month and is paid a wage of TZS 12 per hour. All staff worked
all of their contracted hours in February on production of the GPST dresses and there was no
idle time. No labour rate variance arose in February.
Activity levels for February were as follows:
Budget production and sales (units) 30,000
Actual production and sales (units) 24,000
The production manager at FUNDI Co is responsible for all purchasing and production issues
which occur. SU Co uses standard costing and usually, every time a design change takes
place, the standard cost card is updated prior to production commencing. However, the
company accountant responsible for updating the standards has been off sick for the last two
months. Consequently, the standard cost card for the new dress has not yet been updated.
Required:
(a) Calculate the material variances in as much detail as the information allows for the month of
February.
(b) Calculate the labour efficiency variances in as much detail as the information allows for the
month of February.
(c) Assess the performance of the production manager for the month of February.
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2. You are a newly qualified Certified Public Accountant in the firm of BAC & Co and have
been asked by a senior manager to provide assistance to a new client. The client has asked
for information about standard costing; specifically, the different types of standard costs and
how standard costs are established. You have agreed to prepare a briefing note that will
address these matters.
Requirement: Prepare a briefing note that:
(a) Describes the different types of standard costs and their suitability for use in a company.
(b) Briefly explains two approaches to establish standard costs, including the advantages and
disadvantages of each approach.
(c) Outlines TWO limitations of standard costing.
3. Morty DAC produces one type of strong and affordable rucksack for the Irish and European
hiking market. The company has been operating for the past five years from its manufacturing
base in Kerry.
During the year, to improve its management accounting information, the company invested
in a new information technology system but unfortunately there have been problems with the
software. The standard cost card, which provides details of the standard production cost to
make one rucksack, has been lost and the company is unable to produce its budget for the
year ahead.
The management accountant has retrieved some information relating to actual costs and
variances for the year. The budgeted production for the year was 21,000 rucksacks. Other
relevant information is shown below:
Actual data
Actual production 21,600 rucksacks
Direct material costs: 16,200 square metres TZS 81,000
Direct labour costs: 8,640 hours TZS 108,864
Variables production overhead costs TZS 54,000
Fixed production overhead costs TZS 85,200
Variances
Direct material price variance TZS 4,050 F
Direct material usage variance TZS 5,670 F
Direct labour rate variance TZS 864 F
Direct labour efficiency variance TZS 27,432 F
Variable production overhead expenditure variance TZS 432 A
Variable production overhead efficiency variance TZS 13,392 F
Fixed production overhead variance TZS 3,775 A
Morty DAC operates a standard variable costing system.
Required:
(a) Using the information provided above, prepare:
i) The standard cost card for one rucksack.
ii) A cost statement showing original budget, flexed budget and actual results for the
year.
(b) Describe TWO criticisms of standard costing.
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4. The following information is available for J Ltd for Period 4:
Budget
Fixed production overheads TZS 22,960
Units 6,560
The standard time to produce each unit is 2 hours
Actual
Fixed production overheads TZS 24,200
Units 6,460
Labour hours 12,600 hrs
Required: If J Ltd uses an absorption costing system, calculate the following:
(a) FOAR per labour hour
(b) Fixed overhead expenditure variance
(c) Fixed overhead capacity variance
(d) Fixed overhead efficiency variance
(e) Fixed overhead volume variance.
5. Cheichei Ltd produces and sells one product only. The standard cost and price for one unit
being as follows:
TZS
Direct material A – 10 kilograms at TZS 1,200 per kg 12,000
Direct material B – 6 kilograms at TZS 5,00 per kg 3,000
Direct wages – 5 hours at TZS 800 per hour 4,000
Fixed production overhead TZS 6,000
Total standard cost 25,000
Standard gross profit 5,000
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Standard selling price 30,000
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The fixed production overhead included in the standard cost is based on an expected monthly
output of 750 units. Cheichei Ltd use an absorption costing system.
During April the actual results were as follows:
TZS
Sales 700 units @ TZS 32,000 22,400,000
Direct materials:
A: 7,500 Kg 9,150,000
B: 3,500 Kg 2,030,000
Direct wages 3,400 hours 2,788,000
Fixed production overhead 3,700,000
––––––
17,668,000
––––––
Gross profit 4,732,000
Note: Cheichei Ltd does not hold any inventories.
REQUIRED:
You are required to reconcile budgeted profit with actual profit for the period, after
calculating the following variances:
i) Selling price, sales volume, material price, material usage,
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ii) labour rate, labour efficiency,
iii) fixed overhead expenditure and fixed overhead volume.
6. Bilal operates a standard costing system. The standard direct materials to produce 1,000 units
of output is as follows:
Material Input quantity Price per Kg
grade (Kgs) (TZS)
A 600 1.10
B 240 2.40
C 360 1.50
During April the actual output of the product was 21,000 units. The actual materials issued
to production were:
Material Quantity
grade (Kgs)
A 14,000
B 5,500
C 5,500
REQUIRED:
a) Calculate the material mix variance for each material, and in total.
b) Comment on the figures calculated.
c) Calculate the material yield variance.
d) Comment on the figures calculated.
7. UBA Co operates an absorption costing system and sells three products B, R and K which
are substitutes for each other. The following standard selling price and cost data relate to
these three products:
Product Selling Direct material/unit Direct labour/unit
unit price
B $14.00 3 Kgs @ $1.80/Kg 0.5 hours @ $6.50/hour
R $15.00 1.25Kgs@ $3.28/Kg 0.8 hours @ $6.50/hour
K $18.00 1.94Kgs@ $2.50/Kg 0.7 hours @ $6.50/hour
Budgeted fixed production overhead for the last period was $81,000.
This was absorbed on a machine hour basis. The standard machine hours for each product
and the budgeted levels of production and sales for each product for the last period are as
follows:
Product B R K
Standard machine hours per unit 0.3 hours 0.6 hours 0.8 hours
Budgeted production and sales (units) 10,000 13,000 9,000
Actual volumes and selling prices for the three products in the last period were as follows:
Product B R K
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Actual selling price per unit $14.50 $15.50 $19.00
Actual production and sales (units) 9,500 13,500 8,500
REQUIRED:
Calculate the following variances for overall sales for the last period:
(i) Sales price variance
(ii) Sales volume profit variance
(iii) Sales mix profit variance
(iv) Sales quantity profit variance.
8. Better-Kuku Co produces Omega, an animal feed made by mixing and heating three
ingredients: Alpha, Beta and Gamma. The company uses a standard costing system to
monitor its costs. The standard material cost for 100 kg of Omega is as follows:
Input Kg Cost per Kg Cost per 100 Kg
of Omega
TZS TZS
Alpha 40 2.00 80.00
Beta 60 5.00 300.00
Gamma 20 1.00 20.00
Total 120 400.00
Notes
(1) The mixing and heating process is subject to a standard evaporation loss.
(2) Alpha, Beta and Gamma are agricultural products and their quality and price varies
significantly from year to year. Standard prices are set at the average market price over the
last five years. Better-Kuku Co has a purchasing manager who is responsible for pricing and
supplier contracts.
(3) The standard mix is set by the finance department. The last time this was done was at the
product launch which was five years ago. It has not changed since.
Last month 4,600 kg of Omega was produced, using the following inputs:
Input Kg Cost per Kg Total cost
TZS TZS
Alpha 2,200 1.80 3,960
Beta 2,500 6.00 15,000
Gamma 920 1.00 920
Total 5,620 19,880
At the end of each month, the production manager receives a standard cost operating
statement from Better-Kuku Co’s performance manager. The statement contains material
price and usage variances, labour rate and efficiency variances, and overhead expenditure
and efficiency variances for the previous month. No commentary on the variances is given
and the production manager receives no other feedback on the efficiency of the Omega
process.
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REQUIRED:
(a) Calculate the following variances for the last month:
(i) The material usage variance for each ingredient and in total.
(ii) The total material mix variance.
(iii) The total material yield variance.
(b) Discuss the problems with the current system of calculating and reporting variances for
assessing the performance of the production manager.
9. BMW Manufacturing produces a product named Kiswasadu. This single-product company,
known as Kiswasadu, involves a single operation with standard costs detailed in the following
standard cost card.
Direct Materials US$
2 kg of A at 100 per kg 200
3 kg of B at 75 per kg 225
Direct labor ( 3 hours at 90 per hour ) 270
Variable overhead (3 hours at 20 per DL hours) 60
Total standard variable cost 755
Standard contribution margin 200
Standard selling price 955
BMW manufacturing company plan to produce 10,000 units of BMW in the month of April and
the budgeted costs based on the information contained in the standard cost card are as follows:
Budget based on the above standard costs and an output of 10,000 units
US$ US$
Sales (10,000 units @ 955 per kg)
9,5
50,000 Direct Materials
A: 20,000kg @ 100per kg 2,000,000
B: 30,000kg @ 75 per kg 2,250,000 4,250,000
Direct labor (30,000hours @ 90 per hour) 2,700,000
Variable overhead (30,000 hours @ 20 per DL hours) 600,000 3,300,000
Budgeted contribution 2,000,000
Fixed overheads 1,200,000
Budgeted profit 800,000
Annual budgeted fixed overheads are 14,400,000 and are assumed to be incurred evenly
throughout the year
The Company uses a variable costing system for internal profit measurement purposes
The actual results for April are: US$ US$
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Sales (9000 units @ 900) 8,100,000
Direct Materials
A: 19,000kg @ 110 per kg 2,090,000
B: 20,200kg @ 70 per kg 1,414,000 3,504,000
Direct labor (28,500 hours @ 96 per hour) 2,736,000
Variable overhead 520,000 3,256,000
Contribution 1,340,000
Fixed overheads 1,160,000
Profit 180,000
Manufacturing overhead are charged to production on basis of direct labor hours. Actual
production and sales were 9,000 units
REQUIRED:
(a) Compute all relevant variances (Do not compute material mix and yield variances)