Comment on your calculations (given down below).
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
- 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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