Question

pls help!!!thx

ABC Corporation manufactures lamps. It has set up the following standards per finished unit for direct materials and direct manufacturing labor: Direct materials: 2 lb. at $7.50 per lb. $15.00 Direct manufacturing labor: 0.3 hour at $90 per hour $27.00 The number of finished units budgeted for January 2017 was 20,000; 15000 units were actually produced. Actual results in January 2017 were as follows: Direct materials used: 2.2 lb. x 15,000 = 33,000 lbs @ $7.00/lb. Direct manufacturing labor: 0.32 hrs x 15,000 = 4,800 hrs @ $9.5/hr Assume that there was no beginning inventory of either direct materials or finished units. The following data are for January 2017: Budgeted Actual Number of Lamp sold 20,000 units 15,000 Selling price / unit $80 $85 Variable cost per unit Direct material (2 lbs x $7.50 - $15) (2.2 lbs x $7 = $15.40) Direct labor (0.3 hrs x $90 - $27) (0.32 hrs x $95 - $30.40) Fixed cost $240,000 $240,000 During the month, materials purchased amounted to 40,000 lb. @ $7.00, at a total cost of $280,000. Input price variances are isolated upon purchase. Input-efficiency variances are isolated at the time of usage.

Answer 1

Requirement 1:

	Actual Results	Flexible Budget Variances	Flexible Budget	Sales Volume Variance	Static Budget	Static Budget Variance(Flexible budget Var + Sales Volume Var)
Units sold	15000		15000		20000
Revenue	1275000	75000	1200000	-400000	1600000	-325000
Variable Costs
DM	231000	6000	225000	-75000	300000	-69000
DL	456000	51000	405000	-135000	540000	-84000
Total VC	687000	57000	630000	-210000	840000	-153000
Contribution margin	588000	18000	570000	-190000	760000	-172000
Fixed Costs	240000	0	240000	0	240000	0
Operating Income	348000	18000	330000	-190000	520000	-172000

Requirement 2:

1. Direct Material Price Variance = AQ*(AP-SP) = 40000*(7-7.5) = -20000 = 20,000 (UF)

2.Direct Material Effeciency Variance = (Actual unit usage - Standard unit usage) x Standard cost per unit

= (33000 - 30000)*7.5 = 22,500(favourable)

3. Direct Labour Rate Variance = Actual hours*( Actual rate - Standrad rate)

= 4800*(95-90) = 24000(favourable)

4. Direct Labour Efficiency variance = (Actual hours - Standard hours) x Standard rate

= (4800-4500)*90 = 27000(favourable)

Requirement 3:

Possible Reasons for MPV & MEV are:

• The Material per unit were purchased at a price more than the budgeted is the main reason for Price variance
• Non- consideration of Inflation & market prices may be the reasion for such variance
• Material Effeciency variance will be caused by the excess usage or wastage of the materials than the standard.
• Lack of Planning about the wastage and non-creation of margin usage may be the reason for such variance