OCTOBER –
NOVEMBER
2021
, SOLUTION 1: DIRECT - & ABSORPTION
COSTING; CVP RELATIONSHIPS; STANDARD
COSTING; BUDGETS; PLANNING & CONTROL;
RELEVANT DECISION – MAKING –
DISCONTINUATION; PERFORMANCE
MANAGEMENT; PRICE SETTING; ETHICAL,
SOCIAL, BUSINESS & OTHER RELATED
MATTERS
(a) Standard Costing
(i) The adverse sales volume variance of R1 623 600 means that due to the
actual sales of 27 000 units being far less than the budgeted sales of 45 000
units , there was lost contrition of R1 623 600. This arose from
each of the lost 18 000 sales units resulting in failure to earn R90.20 per unit
.
This adverse sales volume variance can be attributed to COVID 19
regulations which resulted in restrictions in alcohol sales.
(ii) The R75 000 favourable direct labour efficiency variance means that there
was a saving of R75 000 that resulted from the direct labourers using less
hours in production than expected. The company actually used 22 500 hours
, which was 1 500 hours less than the standard 24 000 hours
which saved R50 per hour.
This favourable variance might have resulted from better production methods,
use of more experienced employees or higher motivation for the group of
employees selected to work as companies reduced capacity to meet COVID
restrictions such as social distancing.
(b) Standard costing
(i) The fixed manufacturing overheads volume capacity variance were omitted
from the standard costing report for both gin products because the company
is using the direct costing system, hence the fixed costs are not allocated to
the products.
NOVEMBER
2021
, SOLUTION 1: DIRECT - & ABSORPTION
COSTING; CVP RELATIONSHIPS; STANDARD
COSTING; BUDGETS; PLANNING & CONTROL;
RELEVANT DECISION – MAKING –
DISCONTINUATION; PERFORMANCE
MANAGEMENT; PRICE SETTING; ETHICAL,
SOCIAL, BUSINESS & OTHER RELATED
MATTERS
(a) Standard Costing
(i) The adverse sales volume variance of R1 623 600 means that due to the
actual sales of 27 000 units being far less than the budgeted sales of 45 000
units , there was lost contrition of R1 623 600. This arose from
each of the lost 18 000 sales units resulting in failure to earn R90.20 per unit
.
This adverse sales volume variance can be attributed to COVID 19
regulations which resulted in restrictions in alcohol sales.
(ii) The R75 000 favourable direct labour efficiency variance means that there
was a saving of R75 000 that resulted from the direct labourers using less
hours in production than expected. The company actually used 22 500 hours
, which was 1 500 hours less than the standard 24 000 hours
which saved R50 per hour.
This favourable variance might have resulted from better production methods,
use of more experienced employees or higher motivation for the group of
employees selected to work as companies reduced capacity to meet COVID
restrictions such as social distancing.
(b) Standard costing
(i) The fixed manufacturing overheads volume capacity variance were omitted
from the standard costing report for both gin products because the company
is using the direct costing system, hence the fixed costs are not allocated to
the products.
