Flexible budget variance analysis. (CMA adapted) Todd and Smale Company Ltd. (T&S)is =

a small manufacturer of auto parts. The total production capacity is 100,000 units per year. a eae T&S currently produces dnd sells 80,000 units, which completely satisfies current market — |: Det materials price demand. This demand has been constant for five years, and with the current downturn in the balance eit auto industry, it is not likely that demand will change in the near future. The unit price has also been constant for the last five years. Below is a flexible budget statement over the relevant range of 80,000 to 100,000 units.

Assume that actual production was 79,000 units, and actual input quantities and costs were:

T&S uses standards based on engineering information available from specialized industry databases. These standards are shown below:

REQUIRED 1. Calculate the price and efficiency variances for direct costs.
2. Comment on the results in requirement 1.LO1

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S Total units produced and sold: Revenue Production: Direct materials Direct manufac- turing labour Manufacturing overhead 80,000 90,000 100,000 Unit Price Unit cost $10.00 Total $800,000 Unit Price Unit cost $10.00 Total $900,000 Unit Price Unit cost $10.00 Total $1,000,000 $1.50 120,000 $1.50 135,000 $1.50 150,000 1.00 80,000 1.00 90,000 1.00 100,000 Variable 1.50 120,000 1.50 135,000 1.50 150,000 Fixed 3.50 280,000 3.11 279.900 2.80 280,000 Total inventori- 10 7.50 600,000 7.11 639,900 6.80 680,000 able cost 11 Period costs 12 Variable 0.80 64,000 0.80 72,000 0.80 80,000 13 Fixed 0.70 56,000 0.62 55,800 0.56 56,000 14 Total period 1.50 120,000 1.42 127,800 1.36 136,000 costs 15 Total costs $9.00 720,000 $8.53 767,700 $8.16 816,000 16 Operating income $ 80,000 $132,300 $ 184,000