Answered: Comment on your calculations (given…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

Related questions

Question

Caltex Products plc manufactures electric mini-lawnmowers. Its sales and costs’ budget for November 20X2 is as follows:

Sales: 3 000 units × £72/unit

Costs:
Direct materials (metal): 3 000 units × (1kg per unit × £14/kg)

Direct materials (plastic): 3 000 units × (0.5kg per unit × £7/kg)

Direct labour: 3 000 units × (0.75 hours per unit × £8/hr)

Production overhead: £86 500

Other overheads: £31 000

The company does not absorb production overheads using an overhead absorption rate.
It may be assumed that all of its overheads are fixed in nature.
The company’s actual results for the same month (November) are as follows: Sales: 2 950 units × £73/unit

Costs:
Direct materials (metal): 2 950 units × (0.9kg per unit × £13.80/kg)

Direct materials (plastic): 2 950 units × (£0.5kg per unit × £7.20/unit)

Direct labour: 2 950 units × (0.7 hrs per unit × £8.20/hr)

Production overhead: £84 250

Other overheads: £32 250
Net profit: £34 658

Required:Comment on your calculations (given down below).

	Labour rate variance
=	Actual time (Std. rate – Actual rate)
=	2950 x 0.7 x( 8 - 8.2)
=	-413
	Unfavourable

v	Labour efficiency variance
=	Std. rate (Std. time – Actual time)
=	8 x [(2950x 0.75) - (2950 x 0.7)]
=	1180
	Favourable

Vi	Overhead variances

	Fixed Overheads Expenditure Variance
=	Budgeted Overhead – Actual Overhead
=	(86500+31000) - (84250+32250)
=	1000
	Favourable

	Fixed overhead Volume Variance
=	Recovered Overhead – Budgeted Overhead
=	[(86500+31000)*2950/3000] - (86500+31000)
=	-1958
	Unfavourable