Borrico Ltd manufactures a single product and they had recently introduced a system of budgeting and variance analysis. The following information is available for the month of July 2011:

1

2 Standard costs were:
Direct labour 48,250 hours at £6.50 per hour.
Direct materials 20,000 kilograms at £10 a kilogram.
3 Actual manufacturing costs were:
Direct labour 50,000 hours at £6.75 per hour.
- Direct materials 18,900 kilograms at £10.65 a kilogram.
4 Budgeted sales were 20,000 units at £50 a unit.
Actual sales were 15,000 units at £52 a unit 5,200 units at £56 a unit 5 There was no work-in-progress or stock of finished goods.

Required:

(a) An accounting statement showing the budgeted and actual gross and net profits or losses for July 2011.

(b) The following variances for July 2011.
(i) Direct materials cost variance, direct materials price variance and direct materials usage variance.
(ii) Direct labour cost variance, direct labour rate variance and direct labour efficiency variance.

(c) What use can the management of Borrico Ltd make of the variances calculated in

(b) above?

Transcribed Image Text:

Budget Actual Direct materials 200,000 201,285 Direct labour 313,625 337,500 Variable manufacturing overhead 141,400 143,000 Fixed manufacturing overhead 64,400 69,500 Variable sales overhead 75,000 71,000 Administration costs 150,000 148,650