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Truffle Co makes high quality, hand-made chocolate truffles which it sells
to a local retailer. All chocolates are made in batches of 16, to fit the standard boxes supplied by the retailer. The standard cost of labour for
each batch is $6·00 and the standard labour time for each batch is half an hour. In November, Truffle Co had budgeted production of 24,000 batches; actual production was only 20,500 batches. 12,000 labour hours were used to complete the work and there was no idle time. All workers were paid for their actual hours worked. The actual total labour cost for November was $136,800. The production manager at Truffle Co has no input into the budgeting process.At the end of October, the managing director decided to hold a meeting
and offer staff the choice of either accepting a 5% pay cut or facing a certain number of redundancies. All staff subsequently agreed to accept the 5% pay cut with immediate effect.At the same time, the retailer requested that the truffles be made slightly softer. This change was implemented immediately and made the chocolates more difficult to shape. When recipe changes such as these are made, it takes time before the workers become used to working with the new ingredient mix, making the process 20% slower for at least the first month of the new operation.
The standard costing system is only updated once a year in June and no changes are ever made to the system outside of this.
Required:
(a) Calculate the total labour rate and total labour efficiency variances for November, based on the standard cost provided above.
(4 marks)
(b) Analyse the total labour rate and total labour efficiency variances into component parts for planning and operational variances in as much detail as the information allows.
(8 marks)
(c) Assess the performance of the production manager for the month of November.
(8 marks)
Why on earth have you typed out the whole of a past exam question?
I can only guess that you are expecting me to type out the whole of the answer, but that is not what this forum is for.
You must have a printed answer in the same place in which you found the question and you should use this forum to ask about whatever it is in the answer that you are not clear about – then I will try and help.
You have headed up this thread ‘basic variances’ but the question is not on basic variances at all – it is on planning and operational variances.
I assume that you have watched my free lectures on this? The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.Block Co operates an absorption costing system and sells three types of product – Commodity 1, Commodity 2 and Commodity 3. Like other competitors operating in the same market, Block Co is struggling to maintain revenues and profits in face of the economic recession which has engulfed the country over the last two years. Sales prices fluctuate n the market in which Block Co operates. Consequently, at the beginning of each quarter, a market specialist, who works on a consultancy basis for Block Co, sets a budgeted sales price for each product for the quarter, based on his expectations of the market. This then becomes the ‘standard selling price’ for the quarter. The sales department itself is run by the company’s sales manager, who negotiates the actual sales prices with customers. The following budgeted figures are available for the quarter ended 31 May 2013.
Product Budget product Standard selling price Standard variable
and sales unit Per unit Per unit
Commodity 1 30,000 $30 $18
Commodity 2 28,000 $35 $28.40
Commodity 3 26,000 $41.60 $26.40
Block Co uses absorption costing. Fixed production overheads are absorbed on the basis of direct machine hours and the budgeted cost of these for the quarter ended 31 May 2013 was $174,400. Commodity 1, 2 and 3 use 0•2 hours, 0•6 hours and 0•8 hours of machine time respectively.The following data shows the actual sales prices and volumes achieved for each product by Block Co for the quarter ended 31 May 2013 and the average market prices per unit.
Product Actual product and Actual selling price Average market price
Sales units Per unit Per unit
Commodity 1 29,800 $31 $32.20
Commodity 2 30,400 $34 $33.15
Commodity 3 26,000 $41.60 $39.10
The following variances have already been correctly calculated for Commodities 1 and 2:sales priceoperationalvariances
commodity 1: $35,760 adverse
commodity 2: $25,840 favorable
Sales price planning variances
Commodity 1: $65,560 favourable
Commodity 2: $56,240 adverse
Required:(a) Calculate, for Commodity 3 only, the sales price operational variance and the sales price planning variance. (4 marks)
Have you not read my reply to your previous post?
Do you really think that this forum is here to simply provide you with answers to test questions????
Use this website to learn the topics – the lectures are a complete course for Paper F5 and cover everything needed to be able to pass the exam well.
Then use this forum to ask about whatever you are not clear about in the answers to questions. We are certainly not here to simply do your homework for you free of charge 🙂
(And please do not post a questions about planning and operational variances under the heading ‘basic variances’!! That makes no sense. Start a new thread when it is a new topic.)
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