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Homework answers / question archive / Giao Son Ltd produce wooden furniture, which it sells in a variety of retail outlets
Giao Son Ltd produce wooden furniture, which it sells in a variety of retail outlets. The business operates under a marginal costing system and uses standard costing techniques to control its short term performance. One of its products is a Large Round Table. This product has the following standard cost card. Standard Cost Card Large Round Table £ Materials at £55 per square metre 165 Labour at £15 per hour 30 Total variable cost 195 Budgeted sales of Large Round Tables for November 2020 were 220 units at £490 each. The business expects total monthly overheads to be £237,000. The management accountant reviewed the actual performance for November 2020 and produced the following information based on sales of 237 Large Round Tables. £ Sales revenue 114,945 Materials (830 square metres) 39,200 Labour (440 hours) 6,820 Actual fixed overheads were £275,000. There was no opening or closing stock of the finished product.
REQUIRED
a) Calculate: i. the sales price variance and sales volume variance,
ii. the material usage variance and material price variance,
iii. the labour efficiency variance and labour rate variance,
iv. the fixed overhead expenditure variance.
(A)
1.sale price variance=AQ(AP-SP)
=237(485-490)=1185 un favorable
AP=114945/237
Sale volume variance=(actual sale - budgeted sale)*budgeted price
=(237-220)*490=8330 favorable
2. Material price variance=(SP*AQ)-(AP*AQ)
=(55*830)-(39200)=6450 favorable
Material usage variance=(SQ*SP)-(AQ*SP)
=(237*3*55)-(830*55)=6545 unfavorable
3. Labor rate variance=(AH*SR)-(AH*AR)
=(440*15)-(440*15.5)=220 unfavorable
AR=6820/440=15.5
Efficiency variance=(SH*SR)-(AH*SR)
=(237*2*15)-(440*15)=510 favorable
4. Fixed over head expenditure variance= budgeted fixed costs - actual fixed costs
=237000-275000=38000 unfavorable
(B) report to senior management
* sale price variance of 1185 un favorable means that the product should have been sold at an average price of 490, but instead it sold at 485
* sale volume variance of 8330 favorable is because, budgeted sales volume is 220 but actual sales is 17 more than budgeted
* material price variance of 6450 favorable, because budgeted price is 55 per unit, instead made a purchase at 47.23 (39200/830)
* material usage variance is 6545 unfavorable, because at budgeted level production of 237 units should have been used 237*3=711 units, but instead used 830 units
* labor rate variance of 220 unfavorable, because labors are paid at 15.5 per hour instead of budgetd level of 15 per hour
* labor efficiency variance is 510 favorable, because 237 units of production should have bern used 237*2=474 hours,but instead used 440 hours only
* fixed overhead expenditure variance is 38000 unfavorable as actual spending is 275000 which is 38000 more than budgeted cost of 237000
