Question

The monthly budget of Steelworks, manufacturers of specialist cabinets, was prepared on the following specification:

Production and sales

30 000 units

Selling price

R80 per unit

Direct materials input

5 kg per unit at a cost of R1,20 per kg

Direct labour input

2 hours per unit at a rate of R4 per hour

Variable overhead

R2 per direct labour hour

Fixed overhead

R110 000 per month

The following actual results were recorded for the month of August:

Stock of finished goods at start of month

8 000 units

Sales

40 000 units

Production

42 800 units

Stock of finished goods at end of month

10 800 units

Actual costs incurred were:

R

Direct material

267 220 (213 776 kg at R1,25 per kg)

Direct labour

356 577

Variable overhead

165 243

Fixed overhead

115 000

Further information

(a) Throughout August the price paid for direct materials was R1,25 per kg. Direct material is used as soon as it arrives on site. No stocks of material were held at the start or end of August.

(b) The labour rate paid throughout the month was R4,10 per hour.

(c) The selling price of finished goods was R70 per unit throughout the month.

(d) Stocks of finished goods are valued at standard cost of production.

Required

5.1 In tabular format show the budgeted and actual profit for August, based on the actual sales volume achieved.

5.2 Calculate all the variable cost variances for the month of August (variances must be subdivided e.g. material must have the total variance, the price variance and the usage variance).