Question

Jacky's Pastries expected to use 1.5 pounds of direct materials to produce 1 unit(batch) of product at a cost of $2 per pound. Actual results are in for last year which indicates 390,000 batches of pastries were sold. The company purchased 640,000 pounds of materials at $1.80 per pound and used 624,000 pounds in production. Jacky's pastries expected to used 0.20 direct labour hours to produce 1 unit(batch) of product at a cost of $12 per hour. Actual results are in for last year, which indicates 390,000 batches of pastries were sold. The company's direct labour workforce worked 97,500 hours at $11 per hour.

1. Calculate the material price and quantity variances.

2. Calculate the labour rate of efficiency variances

3. What is flexible budget and why do companies use a flexible budget to evaluate production managers

4. Companies often use standard costs for planning and control purposes. What are standard costs and how is it different from budgeted cost?

Answer 1

standard					actual
particulars	qty	rate	amt		particulars	qty	rate	amt
material	390000*1.5=585000	2	1170000		material	640000	1.80	1152000
labour	390000*0.20=78000	12	936000		labour	97500	11	1072500

1. material price variance=(standard rate-actual rate)actual quantity

=(2-1.8)640000

=128000favourable

material quantity variance=(standard qty-actual qty)standard price

=(585000-640000)2

=(110000) ie, adverse

2.labour rate variance=(standard rate-actual rate)actual hours

=(12-11)97500

=97500 favourable

labour efficiency variance=(standard hours-actual hours)standard rate

=(78000-97500)12

=(234000) ie. adverse

3.Flexible budget is a budget that shows a company's performance at different levels of activity.it is used by managers as it sets a benchmark for actual performance of the company.

4.Standard cost is an estimated future cost per unit.

differnce between a standard cost and budgeted cost is that the standard cost is the budgeted per unit cost whereas budgeted cost is the estimated total cost of a project.