Grainger Ltd makes sofa covers which are sold directly to the public via the company's website. The business has expanded over the last couple of years and has recently appointed you as management accountant to replace Mark Arthurs, the retiring office manager. To help you on your arrival, Mark Arthurs has supplied the following standard costing data, based on observations and financial records. Quantity of resource Cost per unit of resource (£) Standard cost per unit (£) Direct materials 20 280 14 m² (square metres) 10 hours Direct Labour 11.50 115 Total 395 Planned output for October (your first month in the post) had been 2,300 units, however, due to the current trend for refurbishing existing furniture rather than replacing it, the actual output in the month was 2,622 units. The month had, however, been challenging, with staff shortages being plugged using agency staff and fabric is difficult to source due to supply chain issues. The report of actual costs incurred in October is as follows: Quantity of resource Total Cost (£) Direct materials 38,019 m² (square metres) 798,399 Direct Labour 31,464 hours 373,635 Total 1,172,034 In a meeting to discuss cost control in the period, Stuart Brown, the production manager, made the following statement: "in preparing for this meeting I've done some calculations: output was 14% higher than planned but our cost per unit was only 13.2% higher than standard: what a fantastic job the team's done in controlling our costs!" Required: a) Calculate the total direct materials variance and total direct labour variance, together with their respective sub-variances. b) Show how Stuart derived the percentages quoted in his statement and consider its validity. Discuss whether or not you agree that costs have been well controlled in the period.
Grainger Ltd makes sofa covers which are sold directly to the public via the company's website. The business has expanded over the last couple of years and has recently appointed you as management accountant to replace Mark Arthurs, the retiring office manager. To help you on your arrival, Mark Arthurs has supplied the following standard costing data, based on observations and financial records. Quantity of resource Cost per unit of resource (£) Standard cost per unit (£) Direct materials 20 280 14 m² (square metres) 10 hours Direct Labour 11.50 115 Total 395 Planned output for October (your first month in the post) had been 2,300 units, however, due to the current trend for refurbishing existing furniture rather than replacing it, the actual output in the month was 2,622 units. The month had, however, been challenging, with staff shortages being plugged using agency staff and fabric is difficult to source due to supply chain issues. The report of actual costs incurred in October is as follows: Quantity of resource Total Cost (£) Direct materials 38,019 m² (square metres) 798,399 Direct Labour 31,464 hours 373,635 Total 1,172,034 In a meeting to discuss cost control in the period, Stuart Brown, the production manager, made the following statement: "in preparing for this meeting I've done some calculations: output was 14% higher than planned but our cost per unit was only 13.2% higher than standard: what a fantastic job the team's done in controlling our costs!" Required: a) Calculate the total direct materials variance and total direct labour variance, together with their respective sub-variances. b) Show how Stuart derived the percentages quoted in his statement and consider its validity. Discuss whether or not you agree that costs have been well controlled in the period.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Grainger Ltd makes sofa covers which are sold directly to the public via the company's website.
The business has expanded over the last couple of years and has recently appointed you as
management accountant to replace Mark Arthurs, the retiring office manager. To help you on your
arrival, Mark Arthurs has supplied the following standard costing data, based on observations and
financial records.
Quantity of resource
Cost per unit of
resource (£)
Standard cost
per unit (£)
Direct materials
20
280
14 m² (square metres)
10 hours
Direct Labour
11.50
115
Total
395
Planned output for October (your first month in the post) had been 2,300 units, however, due to
the current trend for refurbishing existing furniture rather than replacing it, the actual output in the
month was 2,622 units. The month had, however, been challenging, with staff shortages being
plugged using agency staff and fabric is difficult to source due to supply chain issues.
The report of actual costs incurred in October is as follows:
Quantity of resource
Total Cost (£)
Direct materials
38,019 m² (square metres)
798,399
Direct Labour
31,464 hours
373,635
Total
1,172,034
In a meeting to discuss cost control in the period, Stuart Brown, the production manager, made the
following statement: "in preparing for this meeting I've done some calculations: output was 14%
higher than planned but our cost per unit was only 13.2% higher than standard: what a fantastic
job the team's done in controlling our costs!"
Required:
a)
Calculate the total direct materials variance and total direct labour variance, together
with their respective sub-variances.
b)
Show how Stuart derived the percentages quoted in his statement and consider its
validity. Discuss whether or not you agree that costs have been well controlled in the
period.
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