Kaffee Ltd has the following standard cost.

	Notes	Standard
Sales revenue		£16
Direct material	£5 per kg	£5
Direct labour	£4 per hour	£8

Budgeted fixed costs were £3,000 and sales in units 4,000 units

2,200 units were sold and the actual results for these sales were:

	Notes	Actual
Total Sales revenue		£57,200
Direct materials	4,400kg	£13,200
Direct labour	2,200 hours	£17,600

Actual fixed costs were £7,000.

3a) Calculate the materials and labour sub-variances using the above information.  Then explain each variance.	14 marks
Variance: (name)
Calculation:
Explanation:

2. Variance: (name)

Calculation:

Explanation:

3. Variance: (name)

Calculation:

Explanation:

4. Variance: (name)

Calculation:

Explanation:

3b) State whether the following statements are true or false. If FALSE explain why.	13 marks
‘When doing variance analysis it is only necessary to compare the flexed and actual budgets.’
Answer: Explanation:
‘A favourable sales price variance can only be caused by the price per unit being greater than the budgeted price per unit.’
Answer: Explanation:
‘A favourable material usage variance can only be caused by materials being of better quality than budgeted.’
Answer: Explanation:
‘Only significant adverse variances should be investigated.’
Answer: Explanation:
‘If a total materials or labour variance equals zero, it does not need to be investigated as the budgeted figure is the same as the actual figure’.
Answer: Explanation:
‘An adverse fixed overhead variance can simply be explained as spending too much on overheads, it does not need to be investigated further’.
Answer: Explanation:

3d) To what degree do you consider variance analysis to be a useful business tool.	5 marks
(type your answer here)