Question

QUESTION 4   20 MARKS

Namtech Ltd, is an electronics company which makes two types of televisions – plasma screen TV and LCD TV. It operates within a highly competitive market and is constantly under pressure to reduce prices. Namtech Ltd operates a standard costing system and performs a detailed analysis of both products on a monthly basis.

Extracts from the management information for the month of November are as follows;

Notes Total number of units made and sold 1400 1 Material Price Variance N$ 28 000 (Unfavourable) 2 Total Labour Variance N$ 6 050 (Unfavourable) 3

Notes; 1. The budgeted total sales volume for the TVs was 1180 units, consisting of an equal mix of plasma screen TVs and LCD screen TVs. The actual sale volume was 750 plasma TVs and 650 LCD TVs. Standard sales prices are N$ 350.00 per unit for the plasma TVs and N$ 300.00 for the LCD TVs. The actual sales prices achieved during November were N$ 330.00 per unit of plasma TVs and N$ 290 per unit for the LCD TVs. The standard contribution for plasma TVs and LCD TVs are N$ 190.00 and N$ 180.00 respectively.

2. The reason for this variance was an increase in the purchase price of its key components, Gammer. Each plasma TV and each LCD TV made requires one unit of component Gammer for which Namtech Ltd standard cost is N$ 60.00 per unit. Due to a shortage of components in the market, the market price for November went up to N$ 85.00 per unit of Gammer. Namtech actually paid N$80.00 per unit for it.

3. Each Plasma TV uses two standard hours of labour and each LCD TV uses one and a half standard hour of labour. The standard cost for the labour is N$ 14.00 per hour and this also reflects the actual cost per labour for the company permanent staff in November. However because of the increase in the sales and production volumes in November, the company also had to use additional temporary labour at a higher cost of N$ 18.00 per hour. The total capacity of Namtech Ltd permanent workforce is 2 200 hours production per month, assuming full efficiency. In the month of November, the permanent workforce were wholly efficient, taking exactly two hours to complete each plasma TV and exactly one and a half hour to produce each LCD TV. The total labour variance therefore relates solely to the temporary workers, who took twice as long as the permanent workers to complete their production.

REQUIRED:

4.1 Calculate the Sales Price Variance      (2) 4.2 Calculate the Sale Volume Contribution Variance   (2) 4.3 Calculate the Material Price Planning Variance     (2) 4.4 Calculate the Material Price Operational Variance   (2) 4.5 Calculate the labour Rate Variance     (3)   4.6 Calculate the Labour Efficiency Variance    (3) 4.7 Explain any three reasons why the company will be interested in computing the variances in 3.3 and 3.4        (6)

Answer 1

1	Sales Price Variance
	= (Actual price - Standard Price)x Actual units
	For Plasma TV
	= ($330-$350) x 750 units
	= $247500-$262500
	= $15000 (U)
	For LCD TV
	= ($290-$300) x 650 units
	= $188500-$195000
	= $6500 (U)
2	Sales volume contribution margin
	=Standard contribution per unit (Actual units - Budgeted units)
	For Plasma TV
	=$190 (750-590)
	= $142500-$112100
	= $30400 (F)
	For LCD TV
	=$180 (650-590)
	= $117000-$106200
	= $10800 (F)
3	Material Price Planning Variance
	(Standard price - Budgeted Price)xActual Units
	For Plasma TV
	($85-$60) x 750
	$63750-$45000
	= 18750 (U)
	For LCD TV
	($85-$60) x 650
	= $55250 - $39000
	= 16250 (U)
4	Material Price Operation Variance
	(Actaul price - Standard Price) x Actual Units
	For Plasma TV
	($80-$85) x 750
	= 3750 (F)
	For LCD TV
	($80-$85) x 650
	= $3250 (F)
5	Labour Rate Variance
	(Actual rate - standard rate) x Actual hours
	($18-$14) x 550 hours
	= $2200 (U)
6	Labour efficiency variance
	(Actual hours - standard hours) x Standard rate
	(550-275) x $14
	=$3850 (U)
	Hours needed to complete the production
	For plasma (2*750)	1500
	For LCD (1.5*650)	975
	Total hours required	2475
	Available hours	2200
	Additional standard hour required	275
	Actual additional hour taken by temporary staff (2*275)	550