Calculate operational variances -planning variances, Basic Statistics

Assignment Help:

You have recently joined XYZ, an international company that produces a wide range of office supplies and stationary goods. In your new role as Group Management Accountant your first focus of attention is the performance of a recently acquired division – Ecover - that designs and manufactures travel cases for electronic equipment. This acquisition was part of the group’s strategic decision to diversify and increase its product range. You are currently reviewing the first quarter results for the divisions newly launched e-reader cover which is referred to as product RG13. The profitability of this product is well below expectations, and the performance of the division as a whole is under scrutiny.

 From an initial review of the internal budgeting and performance reporting processes of the division you have gathered the following information.

 The budget process starts 4 months before the year end.

  • Draft budgets are prepared by the finance department and are sent out to operational managers for comment.
  • Standard cost information, which is reviewed annually, is used to calculate production costs while current year actuals are used as a basis for determining non production costs.
  • Senior management are responsible for setting budget targets.
  • Budget targets are the basis for determining performance related incentives.
  • Excel spreadsheets are used for all areas of the budget process.

Although the master budget is fixed once finalised, the division do undertake some basic variance analysis and compare actual operational results to a flexed budget. The level of variance analysis conducted is limited to total material, labour and production overhead variances. The quarterly variance statement is given in Appendix 1.

When managers have been asked to explain these variances they have blamed poor decisions at the planning stage or the use of incorrect standard cost data. Understandably, senior management are not satisfied with this situation and have asked you to investigate the variances further by quantifying the impact of both planning errors and operational variances. In addition to this, you also intend to raise some other issues at the next management meeting regarding the quality of quarterly reporting and the division’s approach to preparing budgets and variance analysis.

For this purpose you have gathered information on the actual costs for the period, the original standard costs used to prepare the budget and have calculated more accurate, up to date revised standard costs. This information is contained in Appendix 1.

Required:

 a)   Calculate the following operational variances and planning variances (where applicable):

 ·         Direct material cost

·         Direct material usage

·         Direct labour rate

·         Direct labour efficiency

·         Variable overhead efficiency

·         Variable overhead expenditure

 b)   Prepare a commentary on the findings of the operational variances calculated above.

c)   Prepare a revised budget profit statement (supported by relevant budget schedules) for the second quarter using the revised standard cost information and forecast sales information given in appendix 1.

 

 Ecover – product RG13

Reconciled actual profit to budget profit for the first quarter:

 


           £

Flexed budget operating profit

 

108,355

Total direct material variance

31,059A

 

Total direct labour variance

 

36,874A

 

Total variable overhead variance

 

9,024A

 

Fixed overhead variance

 

12,000A

 

Actual operating profit

 

19,398

 

Supporting information:

 Budgeted sales volume for first quarter was 40,000 units but only production and sales of 36,800 were actually achieved. The selling price remained the same as budget at £20.50 per unit.

 

Actual Costs for the first quarter

Material

Cost

Quantity per unit

Leather

£9.15 per metre

0.09 metres

Plastic

£2.35 per metre

0.14 metres

Magnetic fastening

£2.45 per metre

0.10 metres

 

 

 

Labour

Rate

Hours per unit

Skilled

£15.85 per hour

0.17 hours

General

£10.25 per hour

0.28 hours

 

 

 

Variable manufacturing overhead

Total £76,000 for the quarter

 

Standard Cost Card

Material

Cost

Quantity per unit

Leather

£7.10 per metre

0.04 metres

Plastic

£1.85 per metre

0.11metres

Magnetic fastening

£2.20 per metre

0.03 metres

 

 

 

Labour

Rate

Hours per unit

Skilled

£15.50 per hour

0.20 hours

General

£9.75 per hour

0.15 hours

 

 

 

Variable manufacturing overhead

£5.20 per labour hour

 

Revised Standard Cost Card

Material

 

Cost

Quantity per unit

Leather

£8.20 per metre

0.07 metres

Plastic

£2.10 per metre

0.16 metres

Magnetic fastening

£2.60 per metre

0.08 metres

 

 

 

Labour

Rate

Hours per unit

Skilled

£15.50 per hour

0.18 hours

General

£9.75 per hour

0.12 hours

 

 

 

Variable manufacturing overhead

£5.90 per labour hour

 

Information required for revised second quarter budget:

 Sales forecast for the second quarter is 50,000 units

  • Forecast selling price is £13.50 per unit
  • No opening stock of finished goods
  • Target closing stock of finished goods is 5,500 units
  • Closing stock of raw materials is estimated to be equivalent to one week’s production
  • Opening stock of raw materials is given below
  • Fixed overheads are forecast to be £178,000 for the quarter.

   


Stock held at beginning of second quarter

Leather

2,850 metres

Plastic

3,150 metres

Magnetic Fastening

8,260 metres

 


Related Discussions:- Calculate operational variances -planning variances

Find population and standerd dev, Find a population data set that contains ...

Find a population data set that contains six entries, has a mean of 5, and has a standard deviation of 2

Help with homework, 1. Penny Pincher, Inc. had a contribution margin of $33...

1. Penny Pincher, Inc. had a contribution margin of $33,000 on sales of $50,000 and had fixed costs of $18,000. Calculate its break-even point in sales dollars. 2. Krueger Company

Find the pv of the depreciation tax, PC Shopping Network may upgrade its mo...

PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $115 million on equipment with a life of 5 years and a salvage value of $15 million. The

Statistics study, Find a statistics study (from a newspaper article, journa...

Find a statistics study (from a newspaper article, journal, research study, or online article) and describe the five-step process of the study. (Hint: it may help to identify the f

What is prime cost, What is prime cost? Primary price is the combin...

What is prime cost? Primary price is the combination of a manufactured item's expenditures of immediate materials and immediate labor. In other words, prime price represent

What are the decision variables, Question 1 Water resources in many pa...

Question 1 Water resources in many parts of Australia are being closely watched and restrictions have been imposed on activities such as garden watering. Suppose that SA Water

Assignment., Introduce the aim of this section of the report including an e...

Introduce the aim of this section of the report including an explanation of the data to be analysed. • Use Excel to produce a box and whisker plot for the two sets of booking data

Joy, Ask questio How many women must be randomly selected to estimate the m...

Ask questio How many women must be randomly selected to estimate the mean weight of women in one age group? We want 90% confidence that the sample mean is within 3.7 lbs of the po

Capital outlays, Capital outlays A budgetary, financial reporting term to ...

Capital outlays A budgetary, financial reporting term to end out the expenditures for the acquisition of: addition to:, chief repair of capital assets intended to advantage prospe

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd