Management accounting Q1

Question 1 (21 marks) Yamaya Yoga is a company manufacturing yoga mats to sell to overseas distributors. For the month of October, it expected to manufacture 16,000 mats. The mat normally sells for a wholesale price of $75. The company uses a standard costing system, with standard cost per mat given in the table below: Direct materials, 2.0 kg of rubber at $20/kg $40.00/mat Direct labor, 3 minutes at $60/hour $3.00/mat Variable manufacturing overhead, 3 minutes at $80/hour $4.00/mat The budgeted fixed manufacturing overhead for October was $76,000. The company applies fixed manufacturing overhead to work in process using a predetermined overhead rate per unit based on the expected production level. Because of extra demand due to home-workouts, demand was much higher than expected, and the company made and sold 19,000 mats. The total revenue collected in October was $1,615,000. Rent on the manufacturing plant (included in fixed manufacturing overhead) was reduced from $50,000 to $42,000, while other fixed manufacturing overheads were as expected. The company purchased 38,000 kg of rubber, but actually used only 36,000 kg of the rubber. Other actual costs are shown below: Actual materials purchased $693,500 Actual direct labor cost incurred 1,000 hours @ $65/hour Actual variable manufacturing overhead $75,000 Required: (a) Determine the following variances, and state clearly whether each is favourable or unfavourable: (1) direct materials price, inventory, and quantity variances, (11) direct labor rate and efficiency variances; (111) variable overhead rate and efficiency variances; (iv) fixed overhead budget and volume variances; and (v) sales price and sales volume variances. (16 marks) (b) The management of Yamaya Yoga has asked you to assess the performance of the company in October. Comment on the materials variances, the fixed overhead variances, and sales variances that you calculated in (a) above, and briefly explain what may be some of the reasons. (3 marks) (c) At the start of November, the company purchased a new imprinting machine which would allow it to imprint and customize its yoga mats, for which it could charge customers an extra $15 per mat above the normal selling price of $75. The company used its October actual total volume of 19,000 mats sold as its budgeted sales for November, but estimated that 30% of the customers would request imprinting on the mats. At the end of November, Yamaya recorded sales of 13,650 standard mats and 7,350 custom mats. Calculate the sales mix variance for each product for the month of November. (2 marks) (Total for Question 1: 21 marks)