Output(Production): Sales Revenue, Direct Materials, Direct

School: Uni. Essex - Course: BE 113 - Subject: Accounting

BudgetBudgetFlexedBudgetActualVarianc es Output(Production)20,000unitsPerunit 22,000units 22,000units ££££ Sales revenue3,000,000150.003,300,0003,190,000 Less: Direct materials100,0005.00110,00085,800 Direct labour1,200,00060.001,320,0001,584,000 Variable overheads200,00010.00220,000250,800 Fixed overheads80,00080,00082,000 Operating profit£ 1,420,000£ 75.001,570,000£ 1,187,400 Question (1a) (b) i) Sales margin price and volume variances Sales margin price variance = AV (AM - SM) = 22,000 units (£70 per unit - £75 per unit) = £110,000 Adv. NB: 70 = 145(actual selling price per unit) - 75 (standard cost per unit) OR Sales Marging price Variance = AV(ASP - SSP) = 22000(145 - 150) = 110,000 adv NB: 3,190,000/22000 = 145 ASP=actual selling price SSP=standard selling price Sales margin volume variance = SM (AV - BV) = £75 (22,000 units - 20,000 units) = £150,000 Fav. ii) Direct material quantity and price variances Materials price variance = AQ (AP - SP) = 57,200 m (£1.5 per m - £2 per m) = £28,600 Fav. NB: 1.5 is coming from 85800/57200 m Materials quantity variance = SP (AQ - SQ) = £2 per kg (57,200 m - 55,000 m) = £4,400 Adv. NB: 55,000 = from 110,000/£2 per kg iii) Direct labour efficiency and rate variances Direct labour rate variance = AH (AR - SR) = 132,000 hours (£12 per hour - £12 per hour) = 0 NB: actual rate is derived from actual total direct labour cost 1,584,000/132,000 total direct labour hours Direct labour efficiency variance = SR (AH - SH) = £12 per hour (132,000 hrs. - 110,000 hrs.) = £264,000 Adv. NB total standard labour hours is derived from total standard labour cost £1,320,000/ £12 rate per hour