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John Moffat.
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- May 17, 2016 at 9:46 am #315433
Dear Tutor,
Could you please help me with the following question:
Bedco manufactures bed sheets and pillowcases which it supplies to a major hotel chain. It uses a just-in-time
system and holds no inventories.
The standard cost for the cotton which is used to make the bed sheets and pillowcases is $5 per m2.
Each bed sheet uses 2 m2 of cotton and each pillowcase uses 0.5 m2. Production levels for bed sheets and
pillowcases for November were as follows:
Budgeted production levels Actual production levels
Units Units
Bed sheets 120,000 120,000
Pillow cases 190,000 180,000
The actual cost of the cotton in November was $5.80 per m2. 248,000 m2 of cotton was used to make the bed
sheets and 95,000 m2 was used to make the pillowcases.
The world commodity prices for cotton increased by 20% in the month of November. At the beginning of the
month, the hotel chain made an unexpected request for an immediate design change to the pillowcases. The new
design required 10% more cotton than previously. It also resulted in production delays and therefore a shortfall in
production of 10,000 pillowcases in total that month.
The production manager at Bedco is responsible for all buying and any production issues which occur, although he
is not responsible for the setting of standard costs.The answer for the usage variance is:
Material usage planning variance
This applies to pillow cases only
m2
180,000 pillow cases should use: original standard (× 0.5) 90,000
180,000 pillow cases should use: revised standard (× 0.55) 99,000
Material usage planning variance in m2 9,000 (A)
Original standard price per m2 $5
Material usage planning variance in $ $45,000 (A)
Material usage operational variance
This applies to pillow cases only
m2
180,000 pillow cases should use: revised standard (× 0.55) 99,000
120,000 sheets should use (× 2) 240,000
Together they should use 339,000
They did use 343,000
Material usage operational variance in m2 4,000 (A)
Original standard price per m2 $5
Material usage planning variance in $ $20,000 (A)How can operational variance be adverse if:
they did use
sheets 248000 m2 but should (120.000×2,2) 264.000m2
pillows 95000 m2 but should use (180.000×0,55) 99.000m2
In both cases they did use less material than budgeted (revised), so in my opinion the variance should be favorable.Could you please help me.
May 18, 2016 at 7:51 am #315553There is no need to type out the whole of a question – all you need to do is say which exam and I can find it myself 🙂
For sheets, they actually used 248,000 m2 but they should have used 120,000 x 2m2 = 240,000. So the operational usage variance is adverse.
For pillow cases they actually used 95,000 m2 but they should have used 180,000 x (0.5 m2 + 10%) = 99,000 m2. So the operational usage variance is favourable.
Which answer have you been looking at? What I have typed corresponds with the examiners own answer.
May 18, 2016 at 9:35 am #315588Thank you for your help.
I just noticed that the 10% refers to pillowcases only.May 18, 2016 at 2:36 pm #315629You are welcome 🙂
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