Question: Budget Variance Analysis ~ The actual quantity of material used was 31
ID: 2492761 • Letter: Q
Question
Question: Budget Variance Analysis ~ The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15.
From the information provided, develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead. Annotate each variance. What does the variance tell you?
Part A - Sales Budget Peyton Approved Sales Budgets July, August, and September 2015 Budgeted Units Budgeted Unit Price Budgeted Total Dollars Jul-15 18,000 18.00 $324,000 Aug-15 22,000 18.00 $396,000 Sep-15 20,000 18.00 $360,000 Total for the first quarter $1,080,000 Part C - Production Budget Peyton Approved Production Budget July, August, and September 2015 July August Sept. Total Next month’s budgeted sales 22,000 20,000 24,000 Percentage of inventory to future sales 70% 70% 70% Budgeted ending inventory 15,400 14,000 16,800 16,800 Add budgeted sales 18,000 22,000 20,000 60,000 Required units to be produced 33,400 36,000 36,800 76,800 Deduct beginning inventory (Previous month ending inventory) 16,800 15,400 14,000 16,800 Units to be produced 16,600 20,600 22,800 60,000 Part E - Manufacturing budget - contains raw materials budget, direct labor budget, and factory overhead budget Peyton Approved Raw Materials Budget July, August, and September 2015 July August Sept. Total Production budget (units) 16,600 20,600 22,800 60,000 Materials requirement per unit 0.5 0.5 0.5 0.5 Materials needed for production 8,300 10,300 11,400 30,000 Add budgeted ending inventory 2,060 2,280 1,980 1,980 Total materials requirements (units) 10,360 12,580 13,380 31,980 Deduct beginning inventory (previous month ending inventory) 4,600 2,060 2,280 4,600 Materials to be purchased 5,760 10,520 11,100 27,380 Material price per unit 7.75 7.75 7.75 7.75 Total cost of direct material purchases $44,640 $81,530 $86,025 $212,195 Peyton Approved Direct Labor Budget July, August, and September 2015 July August Sept. Total Budgeted production (units) 16,600 20,600 22,800 60,000 Labor requirements per unit (hours) 0.5 0.5 0.5 0.5 Total labor hours needed 8,300 10,300 11,400 30,000 Labor rate (per hour) 16.00 16.00 16.00 16.00 Labor dollars $132,800 $164,800 $182,400 $480,000 Peyton Approved Factory Overhead Budget July, August, and September 2015 July August Sept. Total Budgeted production (units) 16,600 20,600 22,800 60,000 Variable factory overhead rate 1.35 1.35 1.35 1.35 Budgeted variable overhead 22,410 27,810 30,780 $81,000 Fixed overhead 20,000 20,000 20,000 20,000 Budgeted total overhead $42,410 47,810 $50,780 $101,000 Part G - Selling Expense Budget Peyton Approved Selling Expense Budgets July, August, and September 2015 July August Sept. Total Budgeted sales $324,000 $396,000 $360,000 1,080,000 Sales commission percent 12% 12% 12% 12% Sales commissions expense 38,880 47,520 43,200 $129,600 Sales salaries 3,750 3,750 3,750 11,250 Total selling expenses $42,630 $51,270 $46,950 $140,850 Part I - General and Admin Expense Budget Peyton Approved General and Administrative Expense Budgets July, August, and September 2015 July August Sept. Total Salaries $12,000 $12,000 $12,000 $36,000 Interest on long-term note 2,700 2,700 2,700 8,100 Total expenses $14,700 $14,700 $14,700 $44,100Explanation / Answer
The question was not complete. Hence, additional information has been obtained from online source.
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The variance report is given below:
Overhead variances cannot be determined as no information has been provided on actual variances (such as actual variable overhead rate). Therefore, actual and budgeted overheads are assumed to be same.
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Analysis:
1) Direct material rate variance indicates that the standard rate and actual rate per unit of material are same. Therefore, the variance is zero.
2) Direct material efficiency variance is favorable as the actual quantity of material used (31,000) is less than the standard material used (31,980) for actual production. This variance indicates efficient use of material by Peyton.
3) Direct labor rate variance is favorable as the actual cost per direct labor hour ($15 is less than the standard cost of direct labor per hour ($16) resulting in a saving of $1 per hour. This variance indicates that Peyton has been able to hire labor at a cost less than the standard rate.
4) Direct labor efficiency variance is unfavorble as the standard direct labor hours for actual production (30,000) is less than the actual direct labor hours (33,000) for actual production. This variance indicates inefficient use of labor.
Peyton Approved Budget Variance Report Actual Results Static Budget Variance Favorable/ Unfavorable Direct Materials Variances Rate Variance 240,250 (31,000*7.75) 240,250 (31,000*7.75) - - Efficiency Variance 240,250 (31,000*7.75) 247,845 (31,980*7.75) 7,595 Favourable Total Direct Material Variance $480,500 $488,095 $7,595 Favourable Direct Labor Variances Rate Variance 495,000 (33,000*15) 528,000 (33,000*16) 33,000 Favourable Efficiency Variance 528,000 (33,000*16) 480,000 (30,000*16) (48,000) Unfavourable Total Direct Labor Variance $1,023,000 $1,008,000 ($15,000) UnfavourableRelated Questions
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