Question

Prof. Chiara Mio 1. Santa Itd realizes two fragrances Sweet and Warm, whose data are presented in the table. Knowing Santak tld has fixed costs for 52.500 €, determine the overall BeP (in euro). Fragrances Price (unit) Variable cost (unit) Production volume Sales volume Sweet 70 1900 1800 Warm 1000 1200 2. Tree company identifies the following budget and actual data regarding the synthetic Christmas tree production unit: Cost Actual cost Budget cost from 0 to 50 units 15.000 Budget cost from 51 to 150 units 11.500 Machinery energy (fixed quote) 13.300 Budget production volume: 120 Actual Production volume: 50 Budget sales volume: 150 Actual sales volume: 48 Determine the overhead variances: A) PRODUCTION VOLUME OVERHEAD VARIANCE; B) SPENDING OVERHEAD VARIANCE.

Answer 1

Q no:1

Ans:Given that Santak Ltd produces two fragrances namely SWEET and WARM and the combined fixed cost is 52.500 Euros,

Computation of overall Break Even Point (BEP) (in euros)

BEP (In euros)= Fixed Cost/ PV Ratio (check working note 1 & 2)

= 52500/0.35135

= 149423 Euros.

Working note 1:

Particulars Sweet   Warm Total

Sales(Sales Volume x Price/unit) 126000 96000 222000

(Sweet=70*1800=126000

Warm=80*1200=96000)

Less: Variable cost(Sales Volume x Variable cost/unit) 72000 72000 144000

(Sweet=40*1800=72000

Warm=60*1200=72000)

  

Contribution 54000 20000 78000

  

Total contribution for sweet and warm=78000

less: Fixed cost =52500

Profit 25500

Working note 2:

Formula for Break Even Point(In Value):-

F= Fixed cost, S= Sales, V= Variable Cost, C= Contribution, P=Profit, PV Ratio= Profit Volume Ratio.

Break Even Point (In Value) = F x S/ S-V or

= F x S/ C or

= F x S/ F +P or

= F/ PV Ratio (PV Ratio= C/S) or

= F/C/S or

= F/S minus V/S or

= F/1-V/S

Break Even Point (In Units) = Fixed cost/ contribution per unit ( If seperate fixed cost is given per product).

Q no:2

Ans:

(A).Computation of Production volume overhead variance:

Formula for Production volume overhead variance= (Actual units produced minus budgeted production units) budgeted overhead rate/unit.

i.e; (actual units produced x budgeted overhead rate per unit) minus ( budgeted production units x budgeted overhead rate/unit)

Therefore by substituting the values given in the question = (50*15) minus (120*11.50)

= 750-1380

= 630(Unfavourable)

Note: It compares the actual overhead cost with budgeted cost.

(B) Computation of Spending Overhead Variance:-

Formula for Spending Overhead Variance: (Actual production volume x Actual variable overhead rate) minus (Actual production volume x Budgeted variable overhead rate)

Therefor by substituting the values given in the question = (50*13.30) minus (50*15)

= 665 - 750

= 85(Favourable)

Note: Favourable variances causes due to decrease in indirect materials, labour, discount on purachese of material, use of latest technology in production and learning curve effect of labour etc.