Awford Industries manufactures sports equipment. One of its products (the Fratton) has the following standard costs per unit:

Cost Type

Material X (2.25 per kg)

2.25

Material Y (4.00 per kg)

8.00

Labour - skilled (12.00 per hour)

3.00

Labour - unskilled (7.00 per hour)

3.50

Variable overhead (Absorbed @ 6.00 per hour of skilled labour)

1.50

Total standard cost per Fratton

18.25

For the month of June, when 2,500 units of the Fratton were produced, production data was as follows:

Material purchased and used:X - 2,600 kgs @ 2.20 per kg;

Y - 5,200 kgs @ 3.90 per kg.

Hours worked in producing 2,500 units of the Fratton:Task A - 640 hours;

Task B - 1,280 hours.

Actual variable overhead cost incurred 3,500.

At the beginning and end of the month Awford Industries had no stocks of any material, work-in-progress or finished product.

Requirement

(a)Calculate the following variances:

Materials price and usage variances (for each material and in total).

Labour efficiency variance (for each type of labour and in total).

Variable overhead expenditure and efficiency variances.

12 Marks

(b)For the materials variances calculated, writing a brief explanatory note of what information they provide to management.

6 Marks

(c)Discuss the extent to which the tightness of standards or budgets (i.e. the level of difficulty incorporated) can impact on their effectiveness with respect to control.