Martin Company manufactures and sells a chemical compound for industrial use. The following information was available at the beginning of 2017: Standard selling price £1,170.00 Estimated production & sales (units) 2,025 Estimated direct materials (27 Kilograms at £10.00 per Kg.) £270.00 Estimated direct labour (20 hours at £7.00 per hour) £140.00 Estimated variable manufacturing overhead (15 hours at £5.00 per hour) £75.00 At the end of 2017, Martin Company established the following actual figures: Production & sales 1,725 units sold for £1,210.00 per unit Direct materials 63,000 Kg. at £9.00 per Kg. Direct wages 45,000 hours at a total cost of £432,000 Variable manufacturing overhead 31,050 hours at a total cost of £ 230,000 (a) Calculate the following variances and indicate whether the variances are adverse or favourable: (i) Materials price (ii) Materials usage (iii) Labour rate
Martin Company manufactures and sells a chemical compound for industrial use. The following information was available at the beginning of 2017:
Standard selling price £1,170.00
Estimated production & sales (units) 2,025
Estimated direct materials (27 Kilograms at £10.00 per Kg.) £270.00
Estimated direct labour (20 hours at £7.00 per hour) £140.00
Estimated variable manufacturing
At the end of 2017, Martin Company established the following actual figures:
Production & sales 1,725 units sold for £1,210.00 per unit
Direct materials 63,000 Kg. at £9.00 per Kg.
Direct wages 45,000 hours at a total cost of £432,000
Variable manufacturing overhead 31,050 hours at a total cost of £ 230,000
(a) Calculate the following variances and indicate whether the variances are adverse or favourable:
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(i) Materials price
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(ii) Materials usage
-
(iii) Labour rate
-
(iv) Labour efficiency
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(v) Variable overhead rate
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(vi) Variable overhead efficiency
(b) Discuss four possible causes for each of the following variances:
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(i) Materials usage
-
(ii) Labour efficiency
(c) Explain how you would determine which variance to examine further in relation to a work performance?
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