Question
PART A
Borrico ltd manufacture a single product and they had currently introduced a system of budgeting and variance analysis.
The subsequent information is available for the month of July 2011:
|
1.
|
|
Budget
Rs
|
Actual
Rs
|
|
|
Direct materials
|
200,000
|
201,285
|
|
|
Direct labour
|
313,625
|
337,500
|
|
|
Variable manufacturing overhead
|
141,400
|
143,000
|
|
|
Variable sales overhead
|
64,400
|
69,500
|
|
|
Fixed manufacturing overhead
|
75,000
|
71,000
|
|
|
Administration costs
|
150,000
|
148,650
|
2. Standard costs were:
Direct labour 48,250 hours at $6.50 per hour
Direct materials 20,000 kg at $10 per kg
3. Actual manufacturing costs were:
Direct labour 50,000 hours at $6.75 per hour. Direct materials 18,900 kg at $10.65 per kg
4. Budgeted sales were 20,000 units at $50 a unit.
Actual sales were:
15,000 units at $52 a unit
5,200 units at $56 a unit
5. There was no work in progress or inventory of finished goods
Required:
(a) Determine the direct materials cost variance, direct materials usage variance and direct materials price variance.
(b) Evaluate the direct labour cost variance, direct labour efficiency variance and direct labour rate variance.
(c) What use can the management of Borrico Ltd make of the variances calculated in (a) and (b) above.
PART B
XYZ company manufacture and market a specific product which they sell at $20 per unit. Current production is 400,000 units per month which represents 80% of capacity. They have the opportunity to utilize their surplus capacity by selling their product at Rs 13 per unit to an outside buyer.
Total costs for the last month were $5,600,000 of which $1,600,000 were fixed cost. This represented a total cost of $14 per unit.
Required:
Based on the provided financial information only, should XYZ company accept the order?
PART C
Describe the opportunity cost concept and why it is used in decision making.