Tungach Ltd make and sell a single product Demand for the product exceeds the expected production capacity of Tungach Ltd The holding of stocks of the finished product is avoided if possible because the physical nature of the product is such that it deteriorates quickly and stocks may become unsala...

a Material usage revision variance Original standard usage ex post usage x original standard price 4000 x 15 kg 6000 4000 x 18 kg 7200 x 8 9600A Material price revision variance Original standard pric ...

Tungach Ltd make and sell a single product. Demand for the product exceeds the expected production capacity

Question:

Tungach Ltd make and sell a single product. Demand for the product exceeds the expected production capacity of Tungach Ltd. The holding of of the finished product is avoided if possible because the physical nature of the product is such that it deteriorates quickly and may become unsalable.
A standard marginal cost system is in operation. Feedback reporting takes planning and operational variances into consideration.
The management accountant has produced the following operating statement for period 9:

Revised standard contribution

Other data are available as follows:
(i) The original standard contribution per product unit as determined at period 1 was:

(ii) A permanent change in the product specification was implemented from period 7 onwards. It was estimated that this change would require 20 per cent additional material per product unit. The current efficient price of the material has settled at £7.50 per kilo.
(iii) Actual direct material used during period 9 was 7800 kilos at £7.90 per kilo. Any residual variances are due to operational problems.
(iv) The original standard wage rate overestimated the degree of trade union pressure during negotiations and was £0.20 higher than the rate subsequently agreed. Tungach Ltd made a short-term operational decision to pay the workforce at £12.10 per hour during periods 7 to 9 in an attempt to minimize the drop in efficiency likely because of the product specification change. Management succeeded in extending the production capacity during period 9 and the total labour hours paid for were 9200 hours. These included 150 hours of idle time.
(v) Budgeted production and sales
quantity (period 9) 4000 units
Actual sales quantity (period 9) 4100 units
Actual production quantity (period 9) 4400 units
(vi) Stocks of finished goods are valued at the current efficient standard cost.
Required:
(a) Prepare detailed figures showing how the material and labour variances in the operating statement have been calculated.
(b) Prepare detailed figures showing how the sales volume variance has been calculated for each causal factor shown in the operating statement.
(c) Prepare a report to the management of Tungach Ltd explaining the meaning and relevance of the figures given in the operating statement for period 9. The report should contain specific comments for any two of the sales volume variance causal factors and any two of the 'other variances'. The comments should suggest possible reasons for each variance, the management member likely to be answerable for each variance and possible corrective action.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...