Question

Sticky Wickets manufactures Cricket Bats. In May 2010 the budgeted sales and production were 19,000 bats and the standard cost card is as follows:
                                                                                                             Std Cost                                          Std Cost
Material (2kgs @ $5/kg)                                                                         10
Labour (3 hrs at $12/hr)                                                                         36
Overheads (3 hrs @ $1/hr)                                                                     3
Marginal Cost                                                                                                                                                  49
Selling Price                                                                                                                                                    68
Contribution                                                                                                                                                     19
Total fixed costs in the period were budgeted at $100,000 and were absorbed on the basis of labour hours worked.

In May 2010 the following results were achieved.

40,000kg of wood were bought at a cost of $196,000, this produced 19,200 cricket bats. No inventory of raw materials is held. The labour was paid for 62,000 hours and the total cost was $694,000. Labour worked for 61,500 hours.

Variable overheads in the period were $67,000.

The sales price was reduced to protect the sales levels. However, only 18,000 cricket bats were sold at an average price of $65.

Total fixed costs in May were $107,000.

Required : Calculate the sales, materials, labour, variable overheads, fixed overheads variances and any other appropriate variances in as much detail as possible.

Answer 1

Sales Price Variance = (Std Price - Actual Price)*Actual units sold

= ($68 - $65)*18,000 = $54,000 Adverse

Sales volume contribution margin = (Budgeted Sales volume - Actual Sales Volume)*Contribution per unit

= (19,000 - 18,000)*$19 = $19,000 Adverse

Materials Price Variance = (Actual Qty*Std Price) - Actual Material Cost

= (40,000 kgs*$5 per kg) - $196,000

= $200,000 - $196,000 = $4,000 Favorable

Materials Usage Variance = (Std Qty - Actual Qty)*Std Price

= [(19,200*2kg) - 40,000]*$5 per kg

= (38,400 - 40,000)*$5 = $8,000 Adverse

Labor Rate Variance = (Actual Hours*Std rate) - Actual Material Cost

= (62,000 hrs*$12 per hr) - $694,000

= $744,000 - $694,000 = $50,000 Favorable

Labor Efficiency Variance = (Std hrs - Actual hrs worked)*Std Rate

= [(19,200*3 hrs) - 61,500 hrs)*$12 per hr

= (57,600 hrs - 61,500 hrs)*$12 = $46,800 Adverse

Labor Idle Variance = (62,000 hrs - 61,500 hrs)*Std Rate

= 500*$12 = $6,000 Adverse

Variable Overhead rate Variance = (Actual Hours*Std rate) - Actual OH Cost

= (62,000 hrs*$1 per hr) - $67,000 = $2,000 Adverse

Variable OH Efficiency Variance = (Std Hrs - Actual Hrs)*Std Rate

= [(19,200*3 hrs) - 62,000]$1

= (57,600 - 62,000)*$1 = $4,400 Adverse

Budgeted fixed OH = $100,000

Budgeted Labor Hours = 19,000 units*3 hrs = 57,000 hrs

Budgeted Rate per hour = $100,000/57,000 hrs

Absorbed Fixed OH = ($100,000/57,000)*62,000 hrs = $108,772

Fixed Overhead Variance = Absorbed Fixed OH - Actual Fixed OH

= $108,772 - $107,000 = $1,772 Favorable