MegaDry is a clothing manufacturer. The budget for the year 2018 looks as follows: Units 10,000...

  

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MegaDry is a clothing manufacturer. The budget for the year 2018 looks as follows: Units 10,000 Sales revenue Fabric materials 800,000 (450,000) (15,000 metre) (75,000) (5,000 hours) (150,000) 125.000 Labour Fixed overhead Profit After completing a variance analysis in the year 2018, the following variances are reported (the labour efficiency variance equals zero): Favourable Materials usage variance of £2,700 Labour rate variance of £4,500 Unfavourable Sales volume variance of £27,500 Sales price variance of £9,000 Material price variance of £6,705 Fixed overhead variance of £5,000 The actual production in 2018 was 9,000 units and all of them were sold at the year-end. REQUIRED: (a) Provide the flexed budget and the actual performance (include the quantities for labour and materials) for MegaDry for the year 2018. (b) Should MegaDry investigate all variances identified? Why or why not? Interpret the following THREE variances and give TWO potential reasons for the occurrence of each one: • Sales price variance; • Sales volume variance; and • Labour rate variance. (c) After interviewing the purchasing manager you found out that a different supplier was used in 2018. Discuss which variances could be impacted by this change in supplier. Consider how and why each variance may arise. (d) The company currently uses the EOQ (Economic order quantity) system for inventory management. Discuss THREE assumptions of the model and provide examples for a clothing manufacturer for each one. MegaDry is a clothing manufacturer. The budget for the year 2018 looks as follows: Units 10,000 Sales revenue Fabric materials 800,000 (450,000) (15,000 metre) (75,000) (5,000 hours) (150,000) 125.000 Labour Fixed overhead Profit After completing a variance analysis in the year 2018, the following variances are reported (the labour efficiency variance equals zero): Favourable Materials usage variance of £2,700 Labour rate variance of £4,500 Unfavourable Sales volume variance of £27,500 Sales price variance of £9,000 Material price variance of £6,705 Fixed overhead variance of £5,000 The actual production in 2018 was 9,000 units and all of them were sold at the year-end. REQUIRED: (a) Provide the flexed budget and the actual performance (include the quantities for labour and materials) for MegaDry for the year 2018. (b) Should MegaDry investigate all variances identified? Why or why not? Interpret the following THREE variances and give TWO potential reasons for the occurrence of each one: • Sales price variance; • Sales volume variance; and • Labour rate variance. (c) After interviewing the purchasing manager you found out that a different supplier was used in 2018. Discuss which variances could be impacted by this change in supplier. Consider how and why each variance may arise. (d) The company currently uses the EOQ (Economic order quantity) system for inventory management. Discuss THREE assumptions of the model and provide examples for a clothing manufacturer for each one.

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Answer Solution Fixed Budget Actual Performance Working Note Per Unit Total Per Unit Total No of Uni... View the full answer