Question

Sunny plc (Sunny) manufactures only one type of product - product Z. The standard cost per unit of product Z is as follow: 

Material	2kg @ $24/kg
Labour	3 hours @ $44/hour
Variable overheads	3 hours @ $11/hour

Budgeted production and sales for November are 1,200 units with the selling price $399 each. Budgeted fixed overheads are $600,000 per quarter incurred evenly each month. In November, actual results are as follows: 

Production and sales were 1,290 units with the selling price being $20 per unit less than the budgets. The cost of material was $58,050. Because of using better quality materials, there was a favourable usage variance of 0.2kg per unit. Labour worked 3,600 hours and received a 3% pay rise at the start of November. Fixed and variable overheads are $197,530 and $43,200 respectively. 

Required: Calculate the variances and prepare the marginal costing Operationg Statement for November? 

Answer 1

Given,

Standard Material Used = 1200 units * 2 kgs = 2400

Standard Material Cost = $24

Actual Material Used = 1290 units * (2-0.2) kgs = 2322 (Given, Because of using better quality materials, there was a favourable usage variance of 0.2 kgs per unit)

Actual Material Cost = $ 58050 / 2322 = $25

Therefore, Material Variances are as follows:

A) Material Price Variance = Actual Quantity * (Standard Price - Actual Price)

= 2322 * (24-25)

= - 2322 which is 2322 Adverse

B) Material Quantity Variance = Standard Price * (Standard Quantity - Actual Quantity)

= 24 * (2400-2322)

= 24 * 78

= 1872 Favourable

C) Material Cost Variance = Material Price Variance + Material Quantity Variance

= 2322 Adverse + 1872 Favourable

= 450 Adverse

Given,

Standard Labour Hours = 1200 units * 3 hrs = 3600

Standard Labour Rate = 44

Actual Labour Hours = 3600

Actual Labour Rate = 44 + (44*3%) = 44 + 1.32 = 45.32

Therefore, Labour Variances are as follows:

A) Labour Rate Variance = (Standard Rate - Actual Rate) * Actual Hours

= (44 - 45.32) * 3600

= 4752 Adverse

B) Labour Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

= (3600 - 3600) * 44

= 0 which means there is no Variance

C) Labour Cost Variance = Labour Rate Variance + Labour Efficiency Variance

= 4752 Adverse + 0 = 4752 Adverse

Given,

Standard Labour Hours = 1200 units * 3 hrs = 3600

Standard Variable Overhead Rate = 11

Actual Labour Hours = 3600

Actual Variable Overhead Rate = $ 43200 / 3600 = 12

Therefore, Variable Overhead Variances are as follows:

A) Variable Overhead Expenditure Variance = (Standard Rate - Actual Rate) * Actual Hours

= (11 - 12) * 3600

= 3600 Adverse

B) Variable Overhead Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

= (3600 - 3600) * 11

= 0 which means there is no Variance

C) Variable Overhead Cost Variance = Variable Overhead Expenditure Variance + Variable Overhead Efficiency Variance

= 3600 Adverse + 0

= 3600 Adverse

Given,

Standard Fixed Overheads = $ 600,000 per quarter incurred evenly each month = $ 600000 / 3 = $ 200,000

Actual Fixed Overheads = $ 197,530

Therefore, Fixed Overhead Expenditure Variance = Standard Overheads - Actual Overheads

= 200000 - 197530

= 2470 Favourable

Since, we are using Marginal Costing - Fixed Overhead Expenditure Variance is the only Variance in Fixed Overhead Variances

Given,

Standard Sales Units = 1200

Standard Selling Price = $ 399

Actual Sales Units = 1290

Actual Selling Price = $ 399 - 20 = $ 379

Therefore, Sales Variances are as follows:

A) Sales Price Variance = (Actual Price - Standard Price) * Actual Sales Units

= (379 - 399) * 1290

= 25800 Adverse

B) Sales Volume Variance = (Actual Units Sold - Standard Sales Units) * Standard Selling Price

= (1290 - 1200) * 399

= 35910 Favourable

C) Sales Cost Variance = Sales Price Variance + Sales Volume Variance

= 25800 Adverse + 35910 Favourable

= 10110 Favourable

Marginal Costing Statement

Particulars	Workings	Budgeted Amt	Variance	Actual
Sales	1290*379	488910.00	10110.00	499020.00
Less: Direct Material	2400*24	57600.00	-450.00	58050.00
Less: Direct Labour	3600*44	158400.00	-4752.00	163152.00
Less: Variable Overheads	3600*11	39600.00	-3600.00	43200.00
Contribution		233310.00		234618.00
Less: Fixed Overheads		200000.00	2470.00	197530.00
Net Operating Profit / Loss		33310.00		37088.00