Task 5

The retail group has introduced a new product and uses a standard cost system. Standard costs for 1000 kilograms of the new product are:

To convert 1 200 kilograms of raw materials into 1 000 kilograms of finished product required 25 hours of labour at £8.25 per hour. Actual direct labour hours and costs are 3 800 hours at £31.350 Factory overhead is applied on a direct labour hour basis at a rate of £9 per hour (£5 fixed £4 variable)

Factory overhead is £36,000 with 4.000 direct labour hours. Actual overheads are £38.000. Actual finished production is 200.000 new products,

The standard cost per kilogram of the finished product:

The standard selling price per unit 25% mark up on total cost. The actual selling prices 20% mark up on total cost.

REQUIRED:

a) Calculate the total and unit costs of the finished product. (AC 3.1)

b) Produce an absorption costing statement showing the marginal cost. (AC 3.1)

c) Calculate the materials, labour and overhead variances. (AC 3.1/3.2)

d) Interpret the variance results considering both financial and non-financial factors. (AC 3.1/3.2)

e) Evaluate the use of different costing methods for pricing purposes(AC 3.2)