ACCA MA · Guided practice (Show me how)
Chapter 26: Variance Analysis
Variance analysis - flex the budget, then explain the gap
A company has prepared the following standard cost card.
| $ per unit | |
|---|---|
| Materials (4 kg at $4.50 per kg) | 18 |
| Labour (5 hrs at $5 per hr) | 25 |
| Variable overheads (5 hrs at $2 per hr) | 10 |
| Fixed overheads (5 hrs at $3 per hr) | 15 |
| 68 |
Budgeted selling price is $75 per unit. Budgeted production is 8,700 units and budgeted sales 8,000 units. There is no opening inventory.
The actual results are:
| Sales | 8,400 units for $613,200 |
| Production | 8,900 units, with the following costs: |
| Materials (35,464 kg) | 163,455 |
| Labour (paid 45,400 hrs; worked 44,100 hrs) | 224,515 |
| Variable overheads | 87,348 |
| Fixed overheads | 134,074 |
The company uses ABSORPTION costing, and values inventory at the standard cost of $68 per unit.
Sign convention used throughout: a FAVOURABLE variance is entered as a POSITIVE figure and an ADVERSE variance as a NEGATIVE figure. A variance is favourable when it increases profit.
(a) Flexed budget and total variances
Prepare the flexed budget for the actual level of activity, and calculate the actual profit and the total profit variance.
(b) The cost and sales variances analysed
Calculate the materials expense (price) and usage variances, the labour rate of pay, idle time and efficiency variances, the variable overhead expenditure and efficiency variances, and the fixed overhead expenditure, capacity and efficiency variances.
(c) The sales variances
Calculate the sales price variance and the sales volume variance under absorption costing.
Opening this exercise…