Question
Treehouse Beds produce beds for children. They sell beds through a variety of retail outlets. The standard cost of producing one of their most popular
Treehouse Beds produce beds for children. They sell beds through a variety of retail outlets. The standard cost of producing one of their most popular beds are as follows:
Manufacturing costsStandard QuantityStandard priceStandard unit cost
Direct Material(1x12" treated pine)50 meters$2.5 per meter$125.00
Direct Labour5 hours$10.00 per hour$50.00
Manufacturing overhead
Variable5 hours$5.00 per hour$25.00
Fixed$40.00
Standard Manufacturing cost per unit$240.00
Treehouse's master budget was based on planned production and sales of 3 000 beds. Actual results were as follows:
Produces 2500 beds
Purchased and used 130000 metres of direct materials for a total cost of $312 000
Total direct labour cost was $123 750 for 11 250 hours
Variable overhead cost was $54 000
Fixed overhead was $115 000
Required
1.Calculate the following variances and label them as either favourable (F) or unfavourable (U). Show all workings: [12 marks]
Direct Materials Price Variance
Direct Materials Quantity/Volume Variance
Total Direct Materials Variance
Direct Labour Price Variance
Direct Labour Quantity/Volume/Efficiency Variance
Total Direct Labour Variance
How can the analysis of budget variances lead to continuous improvement in an organisation?
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