Explain briefly the possible causes of
(i)?A favourable material usage variance
(ii)?A favourable labour rate variance
(iii)?An adverse sales volume contribution variance.
(i)?The material usage variance, being favourable, indicates that the amount of material used was less than expected for the actual output achieved. This could be caused by the purchase of higher quality materials, which resulted in less wastage than normal.
(ii)?The labour rate variance, being favourable, indicates that the hourly wage rate paid was lower than expected. This could be due to employing a lower grade employee than was anticipated in the budget.
(iii)?The sales volume contribution variance, being adverse, indicates that the number of units sold was less than budgeted. This may have been caused by an increased sales price which has reduced customer demand, or due to the actions of competitors.
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Explain what is meant by standard costing
Explain what is meant by a standard cost
Describe four types of standard.
Explain what is meant by a standard hour.
Give five possible sources of information from which a standard materials price may be estimated.
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