Anderson Ltd

Anderson Ltd

1. Anderson Ltd. manufacture gearboxes for use in cars.  At the start of the year, the management of Anderson Ltd. estimated that its costs would be:

Direct labour
Direct material
Variable production overhead
Fixed production overhead
Administration overhead
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:

• labour 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

% of sales value

• total expenditure on raw material was £3.696 M

• there were no opening or closing stocks of raw materials.

TeessideUniversity Open Learning
(a) You are required to prepare an operating statement for the year, using a standard absorption costing system.
Calculations should proceed according to the following headings suffixing ‘A’ for Adverse and ‘F’ for Favourable where appropriate.

Resulting quantities required for the statement are then entered in the ‘Operating Statement for the Year’ sheet shown on page 6. (All working must be shown.)
(Budgeted) Costs
Direct labour
Direct materials
Variable overhead
Fixed overhead
Admin. overhead
Selling price
Standard profit (per unit)
Budgeted profit
Sales price variance
Sales quantity variance

Unit cost £

(These last three entries are added to the ‘Operating Statement for the Year’ on the final sheet of the calculations.)
Cost Variances
Labour Variances
Standard hours =
Standard cost/hour =
Rate variance =
Standard time =
Actual time =
Time variance =
Efficiency variance =

(Add rate and efficiency variances to ‘Operating Statement for the Year’ on the final sheet of the calculations.)
Material Variances
Material price =
Material usage – standard =
– actual =
Material usage variance =
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