168 2. Profit variance due to (1) Sales volume = (Budgeted sales in units - Actual sales in units) X Budgeted profit per unit A: (250 - 280) X 9 - 270 (favourable) B: (200 - 190) X 35 - 50 (unfavourable) C: (150 - 180) 5 - 150 (favourable) 370 (favourable) (ii)Sales price - 7700 (unfavourable) (calculated in part 1) 3. Labour cost variance (1) Labour rates variances (Standard wage rate - Actual wage rate) X Actual hours or, [(Standard wage rate X AH) - (Actual wage rate X AH)] = 10.90 X 4,400 = 33.960) - R4,260) - 3300 (unfavourable) i) Labour efficiency variance = (SH - AH) X SR - (4,500 - 4,400) X 0.90 - 390 (favourable) 4. Material cost variance (1) Material price variance - (SR - AR) X AQ or ((SR X AQ) - (AR X AQI 35.230 - 35,430 - 3200 (unfavourable) (1) Material usage variance = (SQ - AQ 3 SR or (SQ X SR) - (AQ X SR) 35.330 - 3,230 - $100 (favourable) 5. Overbead costs variance (1) Fixed expenditure variance = Budgeted fixed overheads - Actual fixed overheads - 20.50 X 4,000 - 32,000 - 2,000) - Nil m) Variable expenditure variance = (Budgeted variable overheads at AH - Actual variable overheads) - ei X 4,400 - 24,400 - 24,300) = $100 (favourable) (ii) Efficiency variance = (SH - AH) X Standard overheads rate per hour - (4,500 - 4,400) X 1.50 - 3150 (favourable) (iv) Capacity variance - (Budgeted normal capacity hours-Actual hours) X Standard fixed overhead rate per hour - (4,000 - 4,400) X 30.50 - 200 (favourable) P.20.7 The managers of Garware Company Ltd, which manufactures paints, were disappointed at the shortfall in profits for the current year as shown below: Income Statement for the current Year Rin lakh) Particulars Budgeted Actual Units sales (in lakh of litres) 5 5.4 Sales revenue 60.00 61.02 Variable manufacturing costs. Materials 10.00 10.90 Direct labour 7.50 Variable overheads 2.50 2.60 Total variable costs 22.00 Contribution 40.00 39.02 Fixed costs: Manufacturing Selling and administrative 10.00 Total fixed costs 35.00 Profit before tax 5,00 3.67 The President of the company asks you to make an analysis in detail showing why the results fell short of the budgeted profits. Production equalled sales during the period under reference. 8.50 20.00 25.00 25.40 9.95 35.35