Question 4 (a) BG company produces a standard product and sold in a packet of 10 kg. The standard cost card per pack is as follows: Direct Material...

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Question 4 (a) BG company produces a standard product and sold in a packet of 10 kg. The standard cost card per pack is as follows: Direct Material: A - 4 kg @ 50 per kg COST AND MANAGEMENT ACCOUNTING B - 8 kg @ 40 per kg Direct Labour: 6 hours @ 20 per hour The company manufactured and sold 1,600 packets during the month. Actual data for material and labour recorded as under. Direct Material: A - 7,000 kg @ 40 B - 12,500 kg @ 45 Labour hours paid for two different categories of workers: Skilled 6,000 hours @ 25 Semi-skilled 4,000 hours @ 20 5% of the time paid was lost due to an abnormal reason. Calculate the following variances indicating their nature (Favourable or Adverse): (i) Material cost variances (ii) Material price variances (iii) Material usage variances (iv) Material mix variances (v) Material yield variances (vi) Labour cost variances (vii) Labour rate variances (viii)Labour efficiency variances (ix) Labour Idle time variances (9 Marks) (b) Explain Build-Operate-Transfer (BOT) approach and classify the following expenses in Capital Cost or Operating and Maintenance Cost for Toll Roads: (i) Land acquisition (ii) Interest expenses incurred for servicing term loans (iii) Material and Labour (iv) Toll Collection Expenses (v) Contingency Allowance (vi) Periodic painting cost of railings etc. (2 + 3 = 5 Marks)

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Answer Solution: (a) Budget Actual Qty. (Kg.) [SQ] Price () [SP] Amount () [SQ x SP] Qty. (Kg.) [AQ] Price () [AP] Amount () [AQ x AP] A 6,400 50 3,20,000 7,000 40 2,80,000 B 12,800 40 5,12,000 12,500 45 5,62,500 19,200 8,32,000 19,500 8,42,500 Material Cost Variance = (SQ X SP – AQ X AP) = 8,32,000 – 8,42,500 = 10,500 (A) Material Price Variance = (SP – AP) x AQ A ( 50 – 40) × 7,000 Kg = 70,000 (F) B ( 40 – 45) × 12,500 Kg = 62,500 (A) 7,500 (F) Material Usage Variance = SP x (SQ – AQ) A 50 × (6,400 Kg – 7000 Kg) = 30,000 (A) B 40 × (12,800 Kg – 12,500 Kg) = 12,000 (F) 18,000 (A) Material Mix Variance = (RSQ - AQ) X SP A = (6,500 Kg – 7,000 Kg) x 50 = 25,000 (A) B = (13,000 Kg – 12,500 Kg) x 40 = 20,000 (F) 5,000 (A) COST AND MANAGEMENT ACCOUNTING Material Yield Variance = (SQ – RSQ) X SP A = (6,400 Kg – 6,500 Kg) x 50 = 5,000 (A) B = (12,800 Kg – 13,000 Kg) x 40 = 8,000 (A) 13,000 (A) Labour Standard Hours for actual Production = 6 Hours X 1,600 Units = 9,600 Hours Labour Cost Variance = (SH X SR – AH X AR) = 9,600 hrs x 20 – (6,000 hrs x 25) + (4,000 hrs x 20) = 1,92,000 – 2,30,000 = 38,000 (A) Labour Rate Variance = (SR – AR) X AH = ( 20 - 25) x 6,000 hrs = 30,000 (A) Efficiency Variance = (SH – AH worked) x SR = (9,600 hrs – 9,500 hrs) x 20 = 2,000 (F) Idle time Variance = Idle Hours X SR = (AH – AH) × SR = (10,000 hours – 9,500 hours) x 20 = 10,000 (A) AH refers to Actual Hours Worked (b) Build-Operate-Transfer (BOT) Approach: BOT is an option for the Government to outsource public projects to the private sector. With BOT, the private sector designs, finances, constructs and operates the facility and eventually, after specified concession period, the ownership is transferred to the Government. Therefore, BOT can be seen as a developing technique for infrastructure projects by making them amenable to private sector participation. Expenses Classification Land acquisition Capital Cost Interest expenses incurred for servicing term loans Operating and Maintenance Cost Material and Labour Capital Cost Toll Collection Expenses Operating and Maintenance Cost Contingency Allowance Capital Cost Periodic painting cost of railings etc. Operating and Maintenance Cost

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