a) Prepare a variance analysis report for April. Calculate level 2 variances for revenues, fixed costs and operating profit, as well as level 2 and level 3 variances for variable costs.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Section A - Question 1
Number of notebooks
30,000
Selling price
£24 per notebook
Variable costs
Direct material
2 square meter of paper input allowed per unit;
£0.40 per square meter paper
Direct labour standard costs
4 min of manufacturing labour allowed per unit;
£30/h
Total fixed costs
£500,000
The actual results for April were:
Number of notebooks
20,000.00
Revenues
500,000.00
Variable costs
Direct material
£16,650, 1.85 sqm per notebook, £0.45 per sqm
Direct labour
£44,000.00 , 4 min of manufacturing labour, £33/h
Total fixed costs
£595,000
a) Prepare a variance analysis report for April. Calculate level 2 variances for revenues, fixed costs and operating profit, as well as level 2 and level 3 variances for variable costs.
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