Question

Given the following information:     

                                                                 Budget       Actual               

Units produced                                     20,000      22,000    

Materials (kg)                                         80,000      96,000                

Direct Labour (Hours)                         290,000     343,000                 

Material Costs                                    $800,000                    ?                

Direct Labour Costs                         $3,850,000     $4,557,800             

Variable Overhead Costs                $3,500,000     $4,400,000

Fixed Overhead Costs                      $1,600,000     $1,610,000

Other Information

Overhead is Allocated on Direct Labour Hours

During the year 99,000 kg of materials were purchased for $800,000

Beginning Inventory:  none

Ending Inventory:     3,000 kg

Required:

Prepare a flexible budget

Calculate the following variances

1. Material Rate
2. Material Efficiency
3. Labour Price            
4. Labour Efficiency
5. Variable Overhead Rate
6. Variable Overhead Efficiency
7. Fixed Overhead Rate
8. Fixed Overhead Production Volume

Answer 1

	Budget	Per Unit	Standered	Per Unit	Actual	Per Unit
Units Produced	20000		22000		22000
Material (kg)	80000		88000		96000
Direct Labour (Hours)	290000		319000		343000
Material Cost	8,00,000	10	8,80,000	10.00	8,00,000	8.33
Direct Kabour Cost	38,50,000	13	42,35,000	13.28	45,57,800	13.29
Variable Overhead Costs	35,00,000	12	38,50,000	12.07	44,00,000	12.83
Fixed Overhead Costs	16,00,000	6	17,60,000	5.52	16,10,000	4.69
Answer
A. Material Rate	=(Standered rate- actual rate)* Actual Qty
=	(10-8.33)*96000	1,60,320
B. Material Efficiency
Material Effeciency Varaiance =	(Standered Qty- Actual Qty ) *Standered Rate
=	(88000-96000)*10	-80,000	(U)
C. Labour Price	=(Standered rate- actual rate)* Actual Hours
=	(13.28-13.29)*343000	-3430	(U)
D. Labour Efficiency
Labour Efficiency =	(Standered Hours- Actual Hours ) *Standered Rate
=	(319000-343000)*13.28	-3,18,720	(U)
E. Variable Overhead Rate	=(Standered rate- actual rate)* Actual Hours
	(12.07-12.83)*343000	-260680	(U)
F. Variable Overhead Efficiency	(Standered Hours- Actual Hours ) *Standered Rate
	(319000-343000)*12.83	-3,07,920	(U)