Comment on your calculations (given down below).

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
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