Construct a table showing the budgeted, actual and total variances. Calculate: Profit/Sales volume variance, Selling Price variance, Price variances for materials, rate variance for labour and expenditure variances for both variable and fixed overheads.
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.
Alpha Ltd makes and sells a single product. The company operates a
Details of the budget and actual data for the year ending 31 December 2018 are given below:
£
Direct Material 24 kg. @ £10 per kg. 240
Direct Labour 5 hours @£15.00 per hour 75
Variable producing overhead 5 hours @£6.00 per hour 30
Standard selling price £460 per unit
Budgeted fixed production
Budgeted production and sales 20,000 units
At the end of the year, the following actual data was reported:
|
Direct material |
470,000 kg @ £11 per kg |
|
Direct labour |
90,000 hours :@ £14 per hour |
|
Variable production overheads |
£487,500 |
|
Actual selling price |
£470 per unit |
|
Actual fixed production overheads |
£337,000 |
|
Actual production and sales |
19,500 units |
Required:
- Construct a table showing the budgeted, actual and total variances.
- Calculate:
- Profit/Sales volume variance, Selling Price variance, Price variances for materials, rate variance for labour and expenditure variances for both variable and fixed overheads.
- Usage variances for material, efficiency variances for labour and variable overheads, volume variance for fixed overhead.
- Prepare an Operating Statement, detailing the variances, which reconciles the budgeted profit and the actual profit.
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