5

MIM Berhad manufactures a single product which has a

standard cost as follows:
RM
 Direct materials 45m2 @ RM3/m2 135
 Direct labor 15 hours @ RM4/hour 60
 Variable overheads 30
 Fixed overheads 15
240

The standard selling price of the product per unit is RM300.

The monthly production and sales budget is 3,000 units.
The overheads are absorbed on a direct labor hour basis.
Actual figures for the month of May 2012 are as follows:

 Sales 3,600 units @ RM310/unit

 Production 3,200 units
 Direct materials 135,000 m2 @ RM4/m2
 Direct wages 45,000 hours @ RM5/hour
 Variable overheads RM85,000
 Fixed overheads RM43,000
Required

a) Calculate:

I. Direct material price variance

II. Direct material quantity variance
III. Direct labour rate variance
IV. Direct labour efficiency variance

b) State TWO (2) causes of idle time.

I. Direct Material Price Variance
AQ (SP – AP)
= 3,600 unit (RM3 – RM4)
= RM10,800 – RM14,400
= - RM3,600 (Unfavourable)

II. Direct Material Quantity Variance

SP (SQ – AQ)
= RM3 (3,000 unit – 3,600 unit)
= RM9,000 – RM10,800
= - RM1,800 (Unfavourable)
III. Direct Labour Rate Variance
AH (SR – AR)
= 45,000 hour (RM4 – RM5)
= RM180,000 – RM225,000
= - RM4,500 (Unfavourable)

II. Direct Labour Efficiency Variance

SR (SH – AH)
= RM4 (54,000 hour – 45,000 hour)
= RM216,000 – RM180,000
= RM36,000 (Favourable)
i. Faulty machine
Many companies take a “make-do” mentality to machine
breakdown. The idea is that the cost of repairing the
machine are too expensive relative to the lost time it
causes. What companies lack is the ability to properly
ascertain the cost of that lost time in terms of its impact to
gross profit.

ii. Unclear work Instructions

In this case, poor training and the lack of properly assigning
work to the abilities of the operator make them become
inefficient in production.