ProTest Company is in the biochem industry and manufactures only a single product, a
sophisticated testing equipment for chronic illnesses and diseases with the name TestK The
following standard costs apply:
For the period, production was budgeted at units.
Direct materials kilos at $ per kilo
Direct labour hours at $ per hour
Budgeted fixed production overheads $
Fixed production overheads are absorbed on the basis of standard direct labour hours.
The actual data for the period, when production was units, are as follows:
Direct materials purchased and used kilos costing $ per kilo
Direct labour hours at a cost of $ per hour
Fixed production overheads $
Required:
b Provide specific reasons for the variances on each of the calculations done above for :
i Direct material price
ii Direct material usage
iii. Direct labour rate
iv Direct labour efficiency
You are required to state whether it is a favourable or adverse variance.
c Discuss several ways in which standardcosting systems should be adapted in todays
manufacturing environment.
Answer b and c more clearly
