Question

1. Diamond Ltd makes 2 types of baseball bat the “Jonny Bench (JB)” and the “Mickey Mantles (MM)”. The standard costs for these items are shown below: Standard cost JB MM Price £100.00 £55.00 Variable costs Wood –maple 1.5 metres @ £3 per metre 4.50 4.50 Varnish- £12 per litre 6.00 4.00 Labour (variable) @ £15 per hour 45.00 22.50 Variable overhead based on labour hours 15.00 7.50 Total variable cost 70.50 38.50 Standard contribution £29.50 £16.50 Budgeted fixed overheads per month are £150,000 The monthly expected demand is 10,000 JB bats and 5,000 MM bats. The following actual activities took place during the month of April: Sales: total £1,340,000: 9,500 JB bats were sold at an average price of £110 and 6,000 MM bats were sold. Materials: Maple: 23,460 metres @ £3.25 per metre Varnish: 6,580 litres costing a total of £76,328 Labour: 36,850 hours costing a total of £560,120 Overhead: Variable £195,300: Fixed £165,000 Required (a) Calculate the budgeted net income and actual net income for April. (4 marks) (b) Calculate all possible variances for April including a sales volume mix variance. (14 marks) (c) You discover the following two factors which occurred during April: i. Diamond Ltd signed a contract with a sports retailer agreeing a price per MM bat of £48 if the sports retailer agreed to buy 2,000 bats per month including the month of April. The bats made for the sports retailer use a different varnish. In April 667 litres of this varnish costing £8 per litre was used but the costs were included as part of the varnish cost. ii. The bat turning machine became faulty, stopping production. Before the fault was detected 16 faulty JB bats were made and had to be scrapped. In addition to the time required to make the scrapped bats, 8 productive labour hours were lost whilst the machine was out of action. Identify the variances partially explained by these factors, calculate the value which is explained by the factors and the unexplained part of each affected variance. (7

Answer 1

Answer-a:

Budgeted income and actual income:

Budgeted Income Actual income 10,000 JB 5,000 MM Total £ 1,000,000 £ 275,000 £1,275,000 £ 1,340,000 Price Variable costs: Wood maple 1.5 metres @ £3 per metre Varnish superior £12 per litre Labor @ £15 per hour Variable overhead based on labor hours Total variable cost Standard contribution Less: Fixed costs Net income 45,000 22,500 67,500 60,000 20,000 80,000 450,000 112,500 562,500 150,000 37,500 187,500 705,000 192,500 897,500 295,000 82,500 € 377,500 £ 150,000 € 227,500 £ 76,245 76,328 560,120 195,300 907,993 432,007 165,000 267,007 f

Answer-b:

Variance Analysis:

Flexed budget Quantity/ at actual sales efficiency/ SQ x SP variance f 950,000 330,000 Price JB AQ SP £ 950,000 330,000 Price Actual Variance AQ X AP 95,000 F £1,045,000 35,000 A 295,000 1,340,000 630 A MM Total Variable costs: Wood maple 1.5 metres @ £3 per metre Varnish superior £12 per litre Labor @ £15 per hour Variable overhead based on labor hours Total variable cost Standard contribution Less: Fixed costs Net income 2,040 F 9,750 F 3,250 F 70,380 78,960 552,750 184,250 5,865 A 2,632 F 7,370 A 11,050 A 69,750 81,000 562,500 187,500 900,750 379,250 150,000 229,250 76,245 76,328 560,120 195,300 907,993 £ 432,007 165,000 f 267,007 15,000 A £