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    Operating system using standard absorption cost: Anderson Ltd.

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    Anderson Ltd. manufactures gearboxes for use in cars. At the start of the year, the management of Anderson Ltd. estimated that its costs would be:
    Direct labor 8% sales value
    Direct material 50% sales value
    Variable production overhead 8% sales value
    Fixed production overhead 12% sales value
    Administration overhead 5% sales value

    This was based on the following:
    80 employees
    2000 hours worked by each employee
    40 000 gearboxes manufactured in the year as budgeted production
    £200 unit selling price.

    You have recently been employed by the company to establish a standard costing system. At the end of the year you were able to extract the following information:
    - Labor costs £4.40/hour
    - 32 000 units sold
    - £210/unit selling price
    - 160 000 hours were worked
    - Variable production overheads were £640 000
    - fixed production overheads were £810 000
    - Administration costs were £350 000
    - Raw material prices were 10% higher than expected
    - Total expenditure on raw material was £3.696 M
    - There were no opening or closing stocks of raw materials.

    QUESTION- You are required to prepare an operating statement for the year, using a standard absorption costing system.

    Direct Labor=
    Direct Materials=
    Variable overhead=
    Fixed overhead=
    Admin. overhead=

    Selling price=
    Standard profit (per unit) =
    Budgeted profit=
    Sales price variance=
    Sales quantity variance=

    Cost Variances
    Labor Variances
    Standard hours =
    Standard cost/hour =
    Rate variance =
    Standard time =
    Actual time =
    Time variance =
    Efficiency variance =

    Material Variances
    Material price =
    Material usage standard =
    actual =
    Material usage variance =

    Variable overheads
    Standard cost £/hour =
    Expenditure variance =
    Standard cost =
    Actual cost =
    Efficiency variance (time Ã? cost) =

    Fixed overheads
    Expenditure variance =
    Volume variance =

    Admin overhead (treat as fixed)
    Expenditure variance =
    Volume variance =

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    Solution Summary

    The expert examines operating systems using standard absorption costs for Anderson Ltd.