Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Scooter Ltd manufactures scooters for the domestic market using a highly automated process. The company uses a standard costing system for planning and control purposes

Scooter Ltd manufactures scooters for the domestic market using a highly automated process. The company uses a standard costing system for planning and control purposes and has prepared a standard cost sheet based on a practical capacity (denominator level) of 20,000 scooters (200,000 machine hours).

Standard Cost Sheet

Direct Materials (10 kg @$9.00 per kg)........................................................ $90.00

Direct Labour (3 hours @ $20.00 per hour).................................................. $60.00

Variable Overhead (10 machine hours @ $4.00 per machine hour) ............ $40.00

Fixed Overhead (10 machine hours @ $5.00 per machine hour)................. $50.00

Standard cost per barbecue ......................................................................... $240.00

The Manufacturing Department Budget was prepared based on the forecast need to manufacture 18,000 scooters. During the year, 20,000 scooters were actually made.

At year end, the manufacturing department (cost) performance report is as below:

........................................Actual Master Budget ..........@ Std Cost ................Variance

Number of units ......................20,000 .............................18,000 .....................2,000

Direct Materials ..................$2,576,500 .........................$1,620,000 ................$956,500 U

Direct Labour .....................$1,516,000............................ $1,080,000................ $436,000 U

Variable Overhead ...............$861,000 .........................$720,000 .....................$141,000 U

Fixed Overhead ..................$970,000 ............................$900,000 ...................$70,000 U

Total ..................................$5,923,500 .........................$4,320,000 ................$1,603,500 U

After viewing the report, the company CEO was concerned. He wants to know what is going on in the Manufacturing Department. The accountant has directed you to investigate the variances further. As part of your investigations, you have discovered the following:

335,000 kg of raw materials were purchased and used during the year;

72,000 direct labour hours were worked during the year;

210,000 machine hours were worked during the year;

During the year a factory supervisor retired and was not replaced;

Defective materials delivered by a supplier had gone undetected before use in production. This defective material caused the additional use of 30,000 kg of raw materials; 1,000 labour hours, and 2,500 machine hours to meet the required production.

REQUIRED: Calculate the following manufacturing variances for:

Direct materials price variance based on usage

Direct materials efficiency variance

Direct manufacturing labour price variance

Direct manufacturing labour efficiency variance

Variable manufacturing overhead spending variance

Variable manufacturing overhead efficiency variance

Fixed overhead spending variance

Production volume variance Indicate whether each variance is favourable or unfavourable. (27 marks)

b. Provide a short statement to the CEO regarding the potential causes of the following variance and a practical recommendation to address each variance: direct materials efficiency variance (4 marks) labour efficiency variance (4 marks) variable overhead efficiency variance (4 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Clinical Audit In Physiotherapy From Theory Into Practice

Authors: Sue Barnard MSc MCSP, Gayle Hartigan

1st Edition

075063779X, 978-0750637794

More Books

Students also viewed these Accounting questions