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Budgeted contribution
Sales price
Sales volume contribution:
Price
Usage
Rate
Efficiency
Idle time variance
Rate or Expenditure
Efficiency
Actual contribution
Less: Budgeted fixed costs
Adjustment of fixed OH expenditure variance
Actual profit
(1
(1
(1
(1
(1
(1
(1
(1
(1
(1
(1
(1
(1
(1
mark)
mark)
mark)
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mark)
mark)
mark)
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mark)
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(Total 14 marks)
(b)
Performance measurement
(a)
Operating statement
$
(8,400 units x $50) 420,000
Budgeted contribution
Adjustment of sales variances:
Sales price
Sales volume contribution:
Budgeted contribution at actual sales
120,000 A
20,000 A
280,000
60,000 F
0
18,960 A
20,000 F
15,600 F
30,000 A
30,000 F
356,640
(210,000)
10,000 F
156,640
Workings: Variances:
Sales price: Revenues
Actual Revenues
Variance
$
should have been
1,920,000
1,800,000
120,000 A
$20,000 A
720,000
660,000
60,000 F
12,000 t*
12,000 t
0
0
actual paid
Efficiency
hours
Have actually worked
303,360
$
18,960 A
should have worked 2 hours x 8,000 tonnes
16,000hrs
15,000hrs
Variance x standard rate of $18/0.9 per hour 20,000 F
Excess Idle time variance Budgeted idle time actual idle time)
X standard rate per hour
(1,580 800) x $20
15,600 F
Efficiency
Actually worked for
16,000 hrs
15,000 hrs
At standard rate $30 per hour
450,000
480,000
30,000 A
30,000 F
210,000
200,000
10,000F
(b)
From the results in part (a) it is apparent that FS has had a poor performance over the
period and actual profit achieved was only $156,640 as compared with budgeted profit
figure of $210,000. This can be explained as below considering all the factors involved.
Sales
Both sales price and sales volume variances were adverse by $120,000 and $20,000
respectively, which shows that despite reducing the selling prices, sales demand could not
be boosted up. It might be due to general economic downfall, or due to product quality
being poor, or poor marketing. Sales area was the main concern in profits being down from
the budgeted figures.
Direct materials
Price variance is favourable and usage is nil, which reflects a positive performance from the
purchasing and production side, they controlled the cost by buying from right sources and
producing within budget parameters of wastage. Overall it improved the profits.
Direct Labour
Labour rate variance shows an adverse result, which is due to the company paying higher
rate than expected, and right results were achieved in efficiency and cutting down idle time.
Overall it improved the profits.
Variable overheads
Overall the variance is nil. The rate variance is adverse like labour rate, reflecting general
rise in cost of resources in the society, where as efficiency variance is favourable showing
better internal controls in production process.
Fixed overheads
Fixed overheads were $10,000 more than budgeted, again reflecting a rise in general costs
in the economy, like variable overheads and labour.