Sales mix and quantity variance

Closwa Biltong is a Namibian based biltong manufacturer and retailer. The company is famous for its tasty biltong snack packets which are sold at lower prices than that of competitors.

Closwa Biltong oversees the entire process of the manufacture of the biltong; they buy the meat from a reputable local company. The meat is then cut into long strips and salted with a secret recipe which gives the biltong its special and unique flavour. The spice mixture is rubbed into the meat by hand and the salted strips are then transferred to a suitable container for further curing.

Thereafter the meat is dried in a solar dryer for a few hours. Once dry, the biltong is sliced by hand and packed into individual 100-gram packets. This is the only size of this product that they sell. The biltong is then sold to retailers.

Salt and pepper are the principal ingredients used in secret spice recipe, although other ingredients such as sugar, coriander, vinegar and Worcestershire sauce also give their biltong its famous taste.

The financial manager of Closwa Biltong has told you that the company is very pleased with the current state of affairs at the company. He informed you that actual sales for April 2020 were 2 000 packets more than the 20 000 packets that were expected to be sold. However, he cannot understand why actual results for April 2020 differed so much from the budget as he has maintained the same labour force and the same suppliers for April with the same strategic outlook as in prior months. He approached you, as a management consultant to look into this, and presented you with the following facts and figures:

Budget – April 2020

Sales

N$560 000

Meat

1

Spices

2

Packaging

3

Labour

4

Overheads

N$ 85 000

5

Net profit

N$112 200

1) One-third of the meat weight entered into the biltong manufacturing process is lost due to the drying process (I.e. 3 kilograms of raw meat will make 2 kilograms of biltong). Raw meat is purchased from Flash Meat distributors for N$65 per kilogram.

2) One kilogram of biltong meat (after drying) should use 50 grams of the special spice mix. Closwa Biltong purchases the spices from Patel Spices in pre-packaged containers which cost N$140 per kilogram.

3) The branded packaging is manufactured and imported from a supplier in Botswana who has proved to be more reliable and less expensive than local Namibian competitors. The packets cost 0.5 Botswana Pula each.

4) The company employs 25 direct labourers who are paid an hourly rate of N$30. These workers slice and spice the meat, place the pieces in the solar dryer and when dry, package the biltong into individual packets. Management expects each worker to complete 5 packets of biltong an hour. Each worker should work 160 hours a month to meet normal production.

5) Overheads are comprised of a fixed and variable portion. Examples of overheads include electricity used by the solar dryer, insurance and administrative salaries. In the previous month, direct labour hours totalled 3 600 and overheads were N$83 000.

Fixed overheads are allocated on direct labour hours based on normal capacity. The April 2020 budget assumes normal capacity.

Actual – April 2020

Although more packets were sold than anticipated, actual sales were N$10 000 less than expected.
During April 2020 management used a more efficient drying method. Using this method, the loss from drying only amounts to 20% of the meat entering the biltong-making process. Flash Meat distributors increased their prices to N$67 per kilogram.
117kg spices were used during the month at a total cost of N$14 960.
1% of the packets used in the month were stolen from the company’s warehouse and had to be re-ordered from the Botswanan supplier. The price per packet in Botswanan Pula remained the same for this order as for the previous order.
Direct labourers were paid at the expected rate. Each worker worked for 160 hours as expected by management.
Variable overheads amounted to N$6 per direct labour hour.
Fixed overheads were N$68 000 for the month.
Actual profit for the month was N$123 017.
Additional information

The expected average exchange rate for April 2020 was 1 Botswana Pula = 1.38 Namibian Dollar. The actual average rate was 1 Botswana Pula = 1.42 Namibian Dollar.
The company uses a standard absorption costing system.
There was no opening or closing stock of any kind during April 2020.
The only other product that management sell in addition to the biltong is chilli bites. 20% of all packets sold should be chilli bites which have a selling price of N$36 per packet. Only 4 000 packets of chilli bites were sold during April 2020.

Required:

Calculate the Packaging price variance?