Question

Jackson company manufacture products and has prepared a monthly budget based on 10,000 units (produced and sold):

		Per unit cost
Labour	(2 DLH x $11)	$22
Materials	0.5kg x $30/kg	$15
Fixed overhead		$10
Selling price		$65

In January, 9,000 units were produced and sold. The actual budget for January is shown below:

Sales	$594,000
Labour	18,900 hours	$226,800
Material	4,700kg	$131,600
Fixed overhead		$92,000
Profit	$143,600

A) Calculate all the variances (DM price variance, DM material variance, DL price variance, DL efficiency variance, Fixed overhead variance, Sales price variance and Volume variance)

Answer 1

Answer :-

(1) Direct Material & Direct labour are product cost so in order to compare the actual data with standard data, we have to first prepare the revised budget for the actual units.

(2) However, fixed cost is period cost. Therefore, we don't have to prepare the revised budget data.

(3) For sales also, we can't make such revised budget.

Standard (10,000 Units )	Revised Standard for actual output(9,000 Units )	Actual (9,000 units)
	Kg	$	Total		Kg	$	Total		Kg	$	Total
Material	0.5	30	15	Material	0.45	30	13.5	Material	4700	28	131600
	5000	30	150000		4050	30	121500
					(9,000 units*$ 0.5 Per Unit/ 10,000 Units)
	DLH				DLH				DLH
Labour	2	11	22	Labour	2	11	22	Labour	18900	12	226800
	20000	11	220000		18000	11	198000
					(9,000 units* 2 DLH)

(1) Direct Material Price variance = (Standard Price - Actual Price) * Actual Quantity

= ($30 - $28) * 4700 kg

= 9400 Favourable

(a) Actual Price = Total Material Cost / Total material used

= $1,31,600 / 4700 kg

= $ 28 per kg

(2) Direct Material variance = (Standard Price * standard Quantity) (-) (Actual Price * Actual Quantity)

= ($30 * 4,050 kg) (-) ($28 * 4,700 kg)

= 10,100 Unfavourable

(3) Direct Material Usage variance = (Standard Qty - Actual Qty) * Actual Price

= (4,050 kg - 4,700 kg) * $ 30

= 18,200 Unfavourable

(4) Direct Labour Price variance = (Standard rate - Actual rate) * Actual Labour hours

= ($ 11 - $ 12) * 18,900 DLH

= 18,900 Unfavourable

(5) Direct Labour Efficiency variance = (Standard Labour Hours - Actual Labour Hours) * Standard Rate

= (18,000 - 18,900) * $11 Per Unit

= 9,900 Unfavourable

(6) Actual Fixed Overheads = $92,000

  Budgeted Rate = $ 10 Per Unit

(a) Absorbed Fixed overheads = Actual Output * Fixed Overhead Absorption Rate

= (9,000 Units * $ 10 Per Unit)

= $ 90,000

Fixed Overhead Total Variance = Actual Fixed Overhead * Absorbed Fixed Overheads

= ($92,000 - $90,000)

= $2,000 Unfavourable

(7) Sales Price Variance = (Actual Selling Price - Standard Selling Price)* Units Sold

= ($66 - $65)*9,000 Units

= 9,000 Favourable

Actual Selling Price = Actual Sales ($) / Total Units Sold

= $5,94,000 / 9,000 Units

= $ 66 per Unit

(8) Sales Volume Variance = (Actual Units Sold - Budgeted Units )* Budgeted Selling Price

= (9,000 units - 10,000 Units)* $ 65 Per Unit

= 65,000 Unfavourable