Question

Brianna Inc. produces e-book readers using a standard costing system. Each reader sells for

$75. The following is the standard cost to produce one reader:

 9 units of direct materials are required at a cost of $3 per unit.

 2.5 hours of direct labour are required at a cost of $6 per hour.

 Manufacturing overhead is based on 2.5 direct labour hours per unit at a cost of $3.56 per hour. The manufacturing overhead is based on a budgeted level of 50,000 direct labour hours, and the total budgeted fixed overhead is $106,000.

At the end of the current production year, Brianna Inc. had produced and sold 17,500 readers at a selling price of $80 each. The following production costs were realized:

 47,250 direct labour hours were used at a cost of $576,450.

 160,000 direct materials units were purchased at a cost of $3.05 per unit. All direct materials were used in production for the year.

 Overhead costs were $63,000 variable and $110,000 fixed.

Required:

a) Prepare the static and flexible budgets compared to actual and calculate the total variances.

b) Calculate the direct materials price and quantity variances and the direct labour rate and efficiency variances.

c) Calculate the overhead variances (variable rate and efficiency, fixed manufacturing overhead budget and fixed manufacturing overhead volume).

Answer 1

ANSWER ( a )
	AMT. IN $	AMT. IN $
PARTICULARS	BUDGET	ACTUAL	TOTAL VARIANCE
PRODUCTION & SALES QTY **	20000	17500
SELLING PRICE	75	80
SALES REVENUE	1500000	1400000	-100000	ADVERSE
DIRECT MATERIALS	540000	488000	52000	FAVOURABLE
DIRECT LABOUR	300000	576000	-276000	ADVERSE
VARIABLE OVERHEADS	178000	63000	115000	FAVOURABLE
FIXED OVERHEADS	106000	110000	-4000	ADVERSE
PROFITS	376000	163000	-213000	ADVERSE
** ( 50000 hrs /2.5 hrs)
ANSWER ( b )			AMT. IN $
DIRECT MATERIAL COST VARIANCE	A	B	C
	SP X SQ	SP X AQ	AP X AQ
	3 X( 9*17500)	3 X 160000	3.05 X 160000
	472500	480000	488000
MATERIALS PRICE VARIANCE	B-C	-8000	ADVERSE
MATERIALS QTY VARIANCE	A-B	-7500	ADVERSE
DIRECT LABOUR COST VARIANCE	A	B	C
	SR X ST	SR X AT	ACTUAL WAGES
	6 X ( 2.5 X 17500)	6 X 47250	576450
	262500	283500	576450
LABOUR RATE VARIANCE	B-C	-292950	ADVERSE
LABOUR EFFICIENCY VARIANCE	A-B	-21000	ADVERSE
ANSWER ( c )
VARIABLE OVERHEADS VARIANCE	A	B	C
	SR X ST	SR X AT	ACTUAL V. OVH
	3.56X ( 2.5 X 17500)	3.56X 47250	63000
	155750	168210	63000
VARIABLE OVH RATE VARIANCE	B-C	105210	FAVOURABLE
VARIABLE OVH. EFFICIENY VAR.	A-B	-12460	ADVERSE
FIXED OVERHEADS BUDGET VAR.
( BUDGETED OVH - ACTUAL OVH)
( 106000- 110000)		-4000	ADVERSE
	A	B
FIXED OVERHEADS VOLUME VAR.	(SR X ST )	( SR X BT)
	92750	106000
FOH VOLUME VARIANCE	A-B	-13250	ADVERSE