Standard quantity the actual output paints pen sqm per liters sqm

PT3Form

 Verbatim copying of printed material and submitting them as part of TMAs without proper academic acknowledgement and documentation.

 Verbatim copying of material from the Internet, including tables and graphics.

Student Signature

Manal Al-Farra Tutor’s Feedback

Q1 Answer:

There are two different methods of costing known as specific order costing and operating costing. The specific order costing contains Job costing, Batch costing and Contract costing. In this essay, we are going to discuss the differences between these three specific order costing.

2

Answer 1)

First,material price variance = actual usage (standard price per SQM – actual price per SQM)

1. Standard quantity of the actual output = 10,000 paints pen × 0.4 SQM per liters= 4000 SQM 2. Now let apply the formula:

Material quantity variance = $4.5 (4000 SQM – 4,500 SQM) = $2,250 (A)

Third, labor variance = actual number of hours worked ( standard rate per hour – actual rate per hours)

1. The actual rate per hour = $14,400 ÷ 1,800 hours = $8 2. Now let apply the formula:

$6 (2,000 hours – 1,800 hours) = $1,200 (F)

This has risen because the actual productivity exceeds the standard, hence, it is a favorable variable.

First, there are many reasons behind the favorable variance in material price variable. For example, it might occur because the price of material fell, the supplier offered lower price or maybe the company found other suppliers who offer lower price than the previous one. Sometimes, the suppliers can charge with reduced price because of the amount od the purchases increased.

Second, there are many reasons behind the adverse variance in material quantity variable. For example, a change in manufacturing caused a higher material consumption than expected. Also, there might be a poor quality materials than expected or usual ones from the suppliers or the poor quality materials come as a result of buying cheaper materials than the usual ones. Also, there might be a high pilferage of raw material stocks unlike which might be higher than the expected ones.

2

Second, precautionary motive, the companies sometimes hold the extra or additional inventories in order to meet the unexpected circumstances and situation such as strike, delay on supply, shortage and so on. For instance, under the estimated future production and sales needs. In another word, it is protective motive that applies to unclear future needs.

Finally, the speculative motive which used by the company to hold the maximum or minimum levels of inventories in order to have a benefit from the required decrease or increase in the prices in the futures. In another word, the company takes advantage from the price variations and if there is a chance of rise in price or raw materials and so on in the near future, the business hope for holding large quantity of inventory and the other way around.

PT3Form

The inventory control is process of making sure that the proper amounts of stocks are held or maintained by a business, in order to have the ability to meet the customer’s demand and requirement without delay while maintaining the costs that related to holding stock at minimum.

3. The costs of pilferage and obsolescence which are acquired when an entry in the inventory becomes obsolete before being sold or used.

4. The opportunity cost of trying up funds in this type of assets
5. The inventory holding costs are projected as percentage of the inventory value. However, they involve insurance, warehousing, decline and obsolescence

PT3Form

next month of COGS)

2

Cash outflows:

($60,000 - $54,240) = $5,760

2

2. Bragg, S., 2021. Job costing definition. AccountingTools. Available at:
https://www.accountingtools.com/articles/2017/5/14/job-costing [Accessed April 25, 2021].

3. Bragg, S., 2021. Batch cost definition. AccountingTools. Available at:
https://www.accountingtools.com/articles/2017/5/10/batch-cost#:~:text=Batch%20cost%20is %20the%20cluster,individual%20units%20within%20a%20batch. [Accessed April 25, 2021].

2