Question
FarmFresh produces luxury Easter picnic baskets (6 per box) which has the following standard cost per box : / Unit Direct Material (on average) 4
FarmFresh produces luxury Easter picnic baskets (6 per box) which has the following standard cost per box :
/ Unit
Direct Material (on average) 4 kg @ 12 per kg 48
Direct Wages - 5 hrs @ 7 per hour 35
Variable prodn. ohd - 5 hrs @ 2 per hour 10
Fixed prodn ohd - 5 hrs @ 10 per hour 50
Variable production overhead is deemed to vary with the hours worked.
During the period the Actual results were as follows :
Production 18,000 Units
Direct Material 76,000 kg costing 836,000
Direct Wages 84,000 hrs worked 604,800
Variable prodn overhead 84,000 hrs worked 172,000
Fixed production overhead 1,030,000
TOTAL 2,642,800
Required :
a) Using the information above calculate the sub variances for Materials, Wages and Variable overheads. (6 marks)
Fixed overheads are absorbed into production on the basis of standard hours of production and the normal volume of production for the period is 20,000 units (100,000 hours of production)
b) Using the information above on the budgeted fixed overheads calculate the fixed overhead expenditure and volume variances. (1 mark)
c) Put all 8 calculated sub- variances into a schedule which reconciles Actual (2,642,800) to Standard cost (2,574,000). (1 mark)
d) Comment briefly on the usefulness to management of investigating variances. (2 marks)
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