Cost and Management AccountingQuestion 5437 of 251
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Question 5 (a) The following information has been provided by a company: Number of units produced and sold : 7,000 Standard labour rate per hour : ` 9 Actual hours worked : 17,820 hours Labour efficiency : 106.8% Labour rate variance : 71,280 (A) You are required to calculate : (i) Actual labour rate per hour (1 Marks) (ii) Standard hours required for 7,000 units (2 Marks) (iii) Labour Efficiency variance (1 Marks) (iv) Standard labour cost per unit (1 Marks) (v) Actual labour cost per unit (1 Marks) (b) Journalise the following transactions assuming that cost and financial accounts are integrated: (4 Marks) Particulars Amount (in `) Wages paid (20% indirect) 2,00,000 Selling and Distribution Overheads incurred 50,000 Deficiency found in stock of Raw Material (Normal) 80,000 Factory Overheads (Under Absorbed) 60,000 (c) Define spoiled work and defective work and discuss the treatment of defective work in the following circumstances: (1 + 3 Marks) Circumstances Treatment Where a percentage of defective work is allowed in a particular batch as it cannot be avoided. Where the defect is due to bad workmanship Where defect is due to the Inspection Department wrongly accepting incoming material of poor quality.

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Detailed Solution & Explanation

### Labour Variance Calculations **1. Labour Rate Variance:** Labour Rate Variance=(Standard Rate−Actual Rate)×Actual Hours\text{Labour Rate Variance} = (\text{Standard Rate} - \text{Actual Rate}) \times \text{Actual Hours} −₹71,280=(₹9−Actual Rate)×17,820-₹71,280 = (₹9 - \text{Actual Rate}) \times 17,820 9−Actual Rate=−4  ⟹  Actual Rate=₹13.00 per hour9 - \text{Actual Rate} = -4 \implies \text{Actual Rate} = ₹13.00 \text{ per hour} **2. Labour Efficiency Variance:** Given: Labour Efficiency = 106.8% Labour Efficiency=Standard HoursActual Hours×100\text{Labour Efficiency} = \frac{\text{Standard Hours}}{\text{Actual Hours}} \times 100 106.8%=Standard Hours17,820  ⟹  Standard Hours=19,031.76 hours106.8\% = \frac{\text{Standard Hours}}{17,820} \implies \text{Standard Hours} = 19,031.76 \text{ hours} Labour Efficiency Variance=(Standard Hours−Actual Hours)×Standard Rate\text{Labour Efficiency Variance} = (\text{Standard Hours} - \text{Actual Hours}) \times \text{Standard Rate} Labour Efficiency Variance=(19,031.76−17,820)×₹9=₹10,905.84 (Favourable)\text{Labour Efficiency Variance} = (19,031.76 - 17,820) \times ₹9 = ₹10,905.84 \text{ (Favourable)} **3. Standard Labour Cost per Unit:** Standard Labour Cost per Unit=Standard Hours×Standard RateUnits Produced=19,031.76×₹97,000 units=₹24.47\text{Standard Labour Cost per Unit} = \frac{\text{Standard Hours} \times \text{Standard Rate}}{\text{Units Produced}} = \frac{19,031.76 \times ₹9}{7,000 \text{ units}} = ₹24.47 **4. Actual Labour Cost per Unit:** Actual Labour Cost per Unit=Actual Hours×Actual RateUnits Produced=17,820×₹137,000 units=₹33.09\text{Actual Labour Cost per Unit} = \frac{\text{Actual Hours} \times \text{Actual Rate}}{\text{Units Produced}} = \frac{17,820 \times ₹13}{7,000 \text{ units}} = ₹33.09

Key Concepts to Understand

Variance

A measure of dispersion equal to the average of the squared deviations of each data point from the mean. Formula: σ² = Σ(xᵢ − x̄)² / n. Standard Deviation = √Variance.

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