Question
Purpose To enable students in using variance analysis for the purpose of benchmarking when evaluating performance and to control organisational output, efficiency and sustainability. Requirement:
Purpose
To enable students in using variance analysis for the purpose of benchmarking when evaluating performance and to control organisational output, efficiency and sustainability.
Requirement: Standard Costing & Variance Analysis
Hungry Jane, a local restaurant, has been examining the profitability of its set menu. At the beginning of the year the selling price was based on the following predicted costs:
RM
Entre : Soup of the day
100 grams of mushrooms@ RM4.00 per kg 0.40
Cream and other ingredients 0.20
Main course : Roast turkey
Turkey 0.10 kg@ RM14.00 per kg 1.40
Potatoes 0.2 kg@ RM0.25 per kg 0.05
Vegetables 0.3 kg @ RM0.90 per kg 0.27
Other ingredients and accompaniments 0.23
Dessert : Fresh tropical fruit salad
Fresh fruit 0.15 kg @ RM3.00 per kg 0.45
The selling price was set at RM7.50, which produced an overall gross profit of 60%. During October the number of set menus sold was 860 instead of the 750 budgeted: this increase was achieved by reducing the selling price to RM7.00. During the same period an analysis of the direct costs incurred showed:
RM
90 kg of mushrooms 300
Cream and other ingredients 160
70 kg of turkeys 1,148
180 kg of potatoes 40
270 kg of vegetables 250
Other ingredients and accompaniments 200
140 kg of fresh fruits 450
There was no stock of ingredients at the beginning or end of the month.
Required:
Calculate the budgeted profit for the month of October. (1)
Calculate the actual profit for the month of October. (1)
Prepare a statement which reconciles your answers to (a) and (b) above, showing the variances in as much detail as possible. (15)
Prepare a report, addressed to the restaurant manager, which identifies the two most significant variances, and comments on their possible causes. (3)
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