QUESTION 3 (25 MARKS)

Happy Blooms Sdn Bhd has developed the following data for its product named HB for the year 2022:

Standard Quantity /

Standard Hour

Standard Price /

Standard Rate

Direct material4 kgRM5.00Direct labour3 hoursRM6.00Variable production overhead3 hoursRM4.00Fixed production overhead3 hoursRM2.00

The budgeted selling price per unit of HB is RM70. It is estimated that the company would produce and sell 35,000 units of HB during 2016. Both variable production overhead and fixed production overhead are absorbed based on direct labour hours.

At the end of the year 2022, the management accountant has managed to compile the following actual information.

1. 140,000 kg of direct materials were purchased during the year at a total cost of RM770,000. However, only 135,000 kg were actually used in the production.

2. Actual direct labour costs were RM729,600. The actual rate paid to the direct labours was RM5.70 per hour.

3. Actual variable production overhead incurred for the year was RM413,000 while the actual fixed production overhead incurred was RM235,000.

4. During the year, the actual production units were 32,500 units.

5. The company managed to sell 31,800 units of HB during the year and they were sold at the price of RM72.50 per unit.

Required:

a. State FOUR (4) advantages of standard costing

b. List down TWO (2) reasons for each of the following variances.

i. Material price (adverse)

ii. Material usage (adverse)

iii. Labour efficiency (adverse)

c. Compute the following variances:

i. Direct material price

ii. Direct material usage

iii. Direct labour rate

iv. Variable production overhead efficiency

v. Fixed production overhead volume

vi. Sales price

(4 marks)

(6 marks)

vii. Sales volume

(15 marks)

QUESTION 4 (25 MARKS)

i. Explain FOUR (4) types of cost need to be considered before proceed with decision making.

(8 marks)

ii. The management of Hibiz Sdn Bhd has asked for your assistance in deciding whether to continue manufacturing a component or to buy it from an outside supplier. The component called TX3 is used in producing Hibizs finished products.

An analysis of the accounting record and the production data revealed the following information for the year ending 31 December 2022:

1. Department M produced 35,000 units of TX3.

2. The workers in Department M worked full time totaling 6,000 hours per year to produce TX3. Each person was paid at RM12 per hour.

3. The cost of material for every unit of TX3 is RM2.20.

4. Manufacturing overhead that were directly applicable to the production of TX3 were as follows:

Indirect labourRM6,000

UtilitiesRM1,500

DepreciationRM1,800

Property taxes and insuranceRM1,000

All of these costs would be eliminated if TX3 is purchased from outside supplier.

5. The lowest purchase price for a unit of TX3 from an outside supplier is RM4.00. Transportation charges will be RM0.50 per unit and a purchasing clerk will have to be hired with a salary of RM8,500 per annum.

6. If TX3 is purchased from an outside supplier, a major space in Department M will be free from usage. This excess space will be used to store Hibizs finished products. Currently, Hibiz rents a storage space at approximately RM4,000 annually.

Required:

Determine whether Hibiz should make or buy component TX3.

(17 marks)