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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.

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