Performance Pillar
P2 – Performance Management Examiner’s Answers SECTION A Answer to Question One
(a) Average time per unit for the first 560 units: Y= ax
b
Y = 8 x 560
-0.1520
Y = 3.057 hours Total time for 560 units = 560 x 3.057 = 1,712 hours
Time allowed for actual production Actual hours Original standard hours
1,712 hours 3,500 hours 4,480 hours
Direct labour efficiency variances: Planning variance: (4,480 hours – 1,712 hours) x $15 Operating variance: (3,500 hours – 1,712 hours) x $15 Direct labour rate variance: (3,500 hours x $15) - $57,750
$41,520 Favourable $26,820 Adverse $ 5,250 Adverse
(b) Target costing applies to organisations that are forced to accept the market price for a particular item. The organisation uses this market price together with a desired profit target to determine the cost at which the item must be produced. The organisation then sets out to achieve this cost as an average unit cost throughout the life of the product.
November 2010
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P2