(a) (i) Actual Hours Worked
17,820
Standard Rate Per hour
9
Labour Rate Variance
71280 (A)
COST AND MANAGEMENT ACCOUNTING
Labour Rate Variance
= (Standard Rate – Actual Rate) Actual Hours
(9 – Actual Rate) 17,820 = -71,280
(9 – Actual Rate)
= - 4
Actual Rate
= 13
(ii) Labour Efficiency
= Standard Hours x 100
Actual Hours
106.8%
= Standard Hours
1 7,820
Standard Hours
= 19,031.76
(iii) Labour Efficiency Variance
= (Standard Hours – Actual Hours) x
Standard Rate
= (19,031.76 – 17,820) x 9
= 10,905.84 (F)
(iv) Standard Labour Cost per unit= 19,031.76 x 9
7,000
= 24.47
(v) Actual Labour cost per unit = 17,820 x 13
7,000
= 33.09
(b) Journal Entries under Integrated system of accounting
Particulars
(`)
(`)
(i) Work-in Progress Ledger Control A/c
Dr.
1,60,000
Factory Overhead control A/c
Dr.
40,000
To Wages Control A/c
2,00,000
(Being allocation of Direct and Indirect wages)
(ii) Wages Control A/c
Dr.
2,00,000
To Bank A/c
2,00,000
(Being wages paid)
(iii) Cost of Sales A/c
Dr.
50,000
To Selling & Distribution Overhead Control
A/c
50,000
(Being selling & distribution overhead allocated)
(iv) Selling & Distribution Overhead Control A/c
Dr.
50,000
To Bank A/c
50,000
(Being selling & distribution overhead paid)
(v)
Factory overhead control A/c
Dr.
80,000
To Stores Ledger Control A/c
80,000
(Being normal deficiency found in stock of raw
material)
(vi) Costing Profit & Loss A/c
Dr.
60,000
To Factory Overhead Control A/c
60,000
(Being transfer of under absorption of factory
overhead)
(c) Spoiled work is the quantity of production that has been totally rejected
and cannot be rectified.
Defective work refers to production that is not as perfect as the saleable
product but is capable of being rectified and brought to the required
degree of perfection provided some additional expenditure is incurred
Circumstances
Treatment
Where a percentage of
defective work is allowed
in a particular batch as it
cannot be avoided.
If the actual number of defectives is
within the normal limit or is near thereto
the cost of rectification will be
charged to the whole job and spread
over the entire output of the batch. If,
on the other hand, the number of
defective units substantially exceeds the
normal, the cost of rectification of the
number which exceeds the normal will be
written off as a loss in the Costing Profit
and Loss Account.
Where the defect is due to
bad workmanship.
In this case cost of rectification will be
abnormal cost and shall be written off
as a loss. However, if the management
did provide for a certain proportion of
defectives
on
account
of
bad
workmanship as an unavoidable feature
of production. If that be the case, the cost
COST AND MANAGEMENT ACCOUNTING
of rectifying to the extent provided for by
the management will be treated as a
normal cost and charged to the batch.
Where defect is due to the
Inspection
Department
wrongly
accepting
incoming material of poor
quality.
In this case the cost of rectification will
be charged to the department and will
not
be
considered
as
cost
of
manufacture of the batch. Being an
abnormal cost, it will be written off to the
Costing Profit and Loss Account.