Management Accounting Decision and Control Sample assessment 2 task 1.2

Loopster

The information in the table below shows the budgeted variable costs for the manufacture of 250 barrels

..................................Cost Per Unit£.................Budgeted Cost £
Materials.........................36.00................................9000
Direct Labour..................22.50................................5625
Variable Overhead...........10.50................................2625
Total Cost................................................................17250

Actual production for the period was 300 barrels and the total variances incurred are as follows:

..................................TOTAL VARIANCE £
Materials......................1200 Favourable
Direct Labour.................390 Adverse
Variable O/H..................210 Favourable

During the period the actual cost of material was £10 per kg and the standard quantity per unit was 3kg.

420 actual hours were worked

The standard labour time per unit was 1.5 hours

Complete the variance statements below in respect of materials and variable overheads

...........................MATERIALS..............................£
Actual Material Cost.........................................9600
Material Price Variance
Material Usage Variance
Standard Material Cost of Production..............10800

..........................VARIABLE O/H............................£
Actual Variable Overhead Cost.........................2940
Variable Overhead Expenditure Variance
Variable Overhead Efficiency Variance
Standard Variable O/H Cost Of Production.......3150


I can work out the Actual Cost and Standard Cost for both the Materials and Variable Overhead, which I have put in, but I am a bit stuck on how to work out the variances. Any input would be greatly appreciated.

The answers are:

Material Price Variance: 1920 Favourable
Material Usage Variance: 720 Adverse

Variable O/H Expenditure Variance: 0
Variable O/H Efficiency Variance:210 Favourable

Any help getting to those ^^^ would be great. Thanks

N4T

I think I answered this question on the forum in Dec. I will find out how I can post the link.

N4T

https://forums.aat.org.uk/discussion/comment/450427/#Comment_450427

The figures looks familiar is this the same question?

Loopster

Hi Nat, yes it is thank you very much!

How do you work out the second part? ( I am noting down your equations too)

N4T

The 3 Variable overhead variance calculations are:

EXPENDITURE var = AH.AR - AH.SR
EFFICIENCY var = AH.SR - SH.SR
TOTAL var = AH.AR - SH.SR

You are given:
TOTAl var = 210 F
AH = 420 hrs
SR = £10.50 per unit or £7 per hr (£7phr = £2625 / 250 units x 1.5hrs)

You have worked out:
AH.AR = £2940
SH.SR = £3150

(I have highlighted in bold above what you know) Therefore you only need to calc AH.SR (actual hrs x std rate).....420hrs x £7 = £2940.

Putting AH.SR = £2940 in the EXPENDITURE and EFFICIENCY formulae will give:

EXP var = £2940 - £2940 = zero
EFF var = £2940 - £3150 = £210 FAV (actual less than budgeted)

I recommend writing out the three variance calculations whether you are looking at material, labour or the overheads variances. In this example, EXP, EFF and TOTAL. By doing this you can easily see what you have left to calculate. You have done most of it already, so really had very little remaining to do (also very easy) to get full marks.