Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Variances
Original Flexed Actual
Units 20,000 18,500 18,500
Direct material 480,000 444,000 442,650
Direct labor 140,000 129,500 129,940
Variable production overhead 60,000 55,500 58,800
Fixed production overhead 100,000 100,000 104,000
Total 780,000 729,000 735,390
(ii) subdivide the variances for direct material and direct labour shown in your answer to (a) (i)–(iv) above
(ii) Material Quantity Variance = (Standard Price x Actual Quantity) - (Standard Price x Standard Quan
Material Quantity Variance =£ 10,000 Unfavorable
Rolling forecasts—as replacement for budgesting as advocated by beyond budgeting—are main alte
budget, it is advocated because it does not have the same compulsory and stifling image. Key per
ben
iances
Total Variances
1,350 Flexed
(440) Actual
(3,300) Actual
(4,000) Actual
(6,390) Actual
rice x Standard Quantity (ii) Labor Efficiency Variance = (Standard Price x Actual Quantity) - (Standard Price x Standa
Labor Efficiency Variance = -£ 4,900 Favorable
geting—are main alternatives to the annual budget. It can be produced on a monthly or quarterly basis. Compared wi
fling image. Key performance indicators ar embraced in rolling forecasts. Also, it is incorporate exception based mon
benchmarking.
ndard Price x Actual Quantity)
(a) (i) Calculate the fixed production overhead cost variance and the following subsidiary variances: exp
Fixed overhead variance = Standard cost for actual production – Actual cost
Fixed overhead variance = 20405 - 25536
Fixed overhead variance = £5,131 Adverse
Subsidiary Variances:
Expenditure = Budgeted cost - Actual Cost
Expenditure = 22260 - 25536
Expenditure = £ 3,276 Adverse
(b) Briefly discuss the possible reasons why adverse fixed production overhead expenditure, efficiency
Adverse variances may be caused by business expansion not taken into consideration in the budg
increase in fixed overheads), inefficient fixed overheads management (like cases due to empire bu
and planning errors (like increase in insurance premium being higher than budget due to chan
Furthermore, the possible reasons of adverse fixed overhead expenditure are increase in cost
services and change in type of services used. Labor force working less efficiently and lost product
overhead efficiency. Also, adverse fixed overhead capacity are caused by machine break
(c) Briefly discuss two examples of interrelationships between the fixed production overhead efficiency
Not all favorable means good. When you risk to hire unskilled workers as replacement of skilled w
and adverse labor efficiency, material usage, and overhead efficiency variances will occur. The s
purchase cheap and low quality materials. It will also result in favorable material price variance
efficiency and overhead efficiency variances at the same time. Additional costs are to be incurre
materials to suffice company standards are the reasons behind the sa
head variances
ost variance and the following subsidiary variances: expenditure, efficiency and capacity
t for actual production – Actual cost Standard rate = Fixed Overhead / Direct Labor Hou
Standard rate = £ 2.65
r variances
dverse fixed production overhead expenditure, efficiency and capacity variances occur.
ness expansion not taken into consideration in the budget setting process (causing a stepped
ed overheads management (like cases due to empire building pursuits of senior management)
surance premium being higher than budget due to changes in the risk profile of business).
dverse fixed overhead expenditure are increase in cost of services used, excessive use of
ed. Labor force working less efficiently and lost production through strike cause adverse fixed
e fixed overhead capacity are caused by machine breakdown, strikes, labor shortage.
nships between the fixed production overhead efficiency variances and the material and labour variances.
risk to hire unskilled workers as replacement of skilled workers, favorable wage rate variance
age, and overhead efficiency variances will occur. The same thing happens when you risk to
als. It will also result in favorable material price variance and adverse material usage, labor
nces at the same time. Additional costs are to be incurred due to rework or maybe additional
uffice company standards are the reasons behind the said facts.
ed Overhead / Direct Labor Hours
nd labour variances.
IM17.5 Intermediate: Labour and overhead variances and ex-post wage rate analysis. (TASK1A ONL
(i) Labour Rate Variance = (Actual Price x Actual Quantity) - (Standard Price x Actual Quantity)
Labour Rate Variance = -£ 572 Favorable
(ii) Labor Efficiency Variance = (Standard Price x Actual Quantity) - (Standard Price x Standard Quanti
Labor Efficiency Variance = £ 12,480 Unfavorable
(iii) Fixed Overhead Expenditure Variance = (Actual Fixed Overhead - Budgeted Fixed Overhead)
Fixed Overhead Expenditure Variance = £ 18,000 Unfavorable
rate analysis. (TASK1A ONLY)
Price x Actual Quantity) (iv) Fixed Overhead Volume Variance = (Budgeted Fixed Overhead - Ap
Fixed Overhead Volume Variance =
15.75
(Budgeted Hours x Standard Price of Overhead) - (Actual Hours x Standard Price of Overhead)
£ 8,820 Unfavorable
=(Actual Hours x Fixed Overhead Hourly Rate) - (Standard Hours x Fixed Overhead Hourly Rate)
£ 16,380 Unfavorable
IM17.7 Intermediate: Calculation of inputs working backwards from variances
(a) Prepare for the month of April a statement of total standard costs for product EM
( c) Calculate the number of units of product EM which were budgeted for April
State how the material and labour cost standards for product
(d) EM would originally have been determined
Given that there are two approaches that can be used to set standards—past historical record
operations through careful specifications of materials, labour and
In historical records, there is a risk of past inefficiencies inclusion as standards are set based o
attention on finding the best combination of resources, production methods an
for product EM
£ 10
1
35
10
50
£ 106
enditure variance
Standard Cost
set standards—past historical records (estimate labor and material usage) and engineering studies (detailed study of
ecifications of materials, labour and equipment and on controlled observations of operations).
lusion as standards are set based on average past performance for the same or similar operations. Thus, it does not
f resources, production methods and product quality as its disavantage compared to engineering method.
es approach, the standard cost for each operation (for direct labour, direct materials
quantity of input that should be used per unit of output by the amount that should be paid for each unit of input.
material and labour cost standards for product EM would originally have been determined.
eering studies (detailed study of each
erations).
ined.