ABC manufactures a product which is used in the retail industry. They have provi

Question

ABC manufactures a product which is used in the retail industry. They have provided you with the following data:

Standards -
              DM                                                                           3lbs at $1 per lb
              DL                                                                             5Hrs at $4 per hour
              Variable OH (per DL hour)                              $3.20
              Fixed OH                                                                $22,000
              Expected DL Hours                                            8,000

Actual Data -
                DM                                                                         3,100lbs at $0.90 per lb
                DL                                                                           4,900hrs at $4.05 per hr
               Variable OH                                                         $16,170
               Fixed OH                                                               $19,000
               Units produced                                                  1,000 units

Required:

ABC has asked you to prepare a report that shows all variable production cost price and efficiency variances and the fixed overhead spending variance.

Direct Materials
Price Variance: _____________________         Efficiency Variance: __________________________

Total DM Variance: __________________

Direct Labor
Price Variance: _____________________         Efficiency Variance: __________________________

Total DL Variance: ___________________

Variable OH

Price Variance: _____________________         Efficiency Variance: __________________________

Total VOH Variance: _________________

Fixed OH

Spending Variance: _____________________               

Using the results of this analysis suggest to Shell:

WHO might be responsible for each of the DM and DL variances

For ALL variances, indicate one reason why the variance exist (remember one variance might be favorable while another is unfavorable).

For ALL variances, with the one reason you selected, provide ABC with one specific (and distinct) suggestion regarding action they might take to improve their performance (in suggesting recommendations think about variances holistically and what are some business scenarios that might be occurring in the company).

Explanation / Answer

Material Variances Actual Quantity (lb) Actual Rate (Rs.) Actual Cost (Rs.) Actual Quantity (lb) Standard Rate (Rs.) Standard Cost for Actual Quantity (Rs.) Standard Quantity for Actual Production (Rs.) Standard Rate (Rs.) Standard Cost (Rs.) Standard Quantity for Actual Input (Rs.) Standard Rate (Rs.) Standard Cost (Rs.) 3100.00 0.90 2790.00 3100.00 1.00 3100.00 3000.00 1.00 3000.00 3000.00 1.00 3000.00 Direct Materials Price Variance = (Actual price - Budgeted price) x Actual quantity 310.00 Favourable Variance exists since Standard Rate > Actual Rate Direct Materials Efficiency Variance = (Actual unit usage - Standard unit usage) x Standard cost per unit -100.00 Unfavourable Variance exists since Actual Quantity > Standard Quantity Total Direct Materials Variance = Actual Cost - Standard Cost 210.00 Favourable Variance exists since price variance > efficiency variance Labour Variances Actual Hours Actual Rate (Rs.) Actual Cost (Rs.) Actual Hours Standard Rate (Rs.) Standard Cost for Actual Hours (Rs.) Standard Hours for Actual Production (Rs.) Standard Rate (Rs.) Standard Cost (Rs.) Standard Hours for Actual Input (Rs.) Standard Rate (Rs.) Standard Cost (Rs.) 4900.00 4.05 19845.00 4900.00 4.00 19600.00 5000.00 4.00 20000.00 5000.00 4.00 20000.00 Direct Labor Price Variance = (Actual rate - Standard rate) x Actual hours worked -245.00 Unfavourable Variance exists since Actual Rate > Standard Rate Direct Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate 400.00 Favourable Variance exists since Standard Hours > Actual Hours Total Direct Labor Variance = Actual Cost - Standard Cost 155.00 Favourable Variance exists since efficiency variance > price variance Variable Overhead Variance Actual Hours Actual Rate (Rs.) Actual Cost (Rs.) Actual Hours Standard Rate (Rs.) Standard Cost for Actual Hours (Rs.) Standard Hours for Actual Production (Rs.) Standard Rate (Rs.) Standard Cost (Rs.) 4900.00 3.30 16170.00 4900.00 3.20 15680.00 5000.00 3.20 16000.00 Variable OH Price Variance = Actual hours worked x (Actual overhead rate - standard overhead rate) -490.00 Unfavourable Variance exists since Actual Rate > Standard Rate Variable OH Efficiency Variance = Standard overhead rate x (Actual hours - standard hours) 320.00 Favourable Variance exists since Standard Hours > Actual Hours Total Variable OH Variance = Actual Cost - Standard Cost -170.00 Unfavourable Variance exists since price variance > efficiency variance Fixed Overhead Variance Actual Hours Actual Rate (Rs.) Actual Cost (Rs.) Budgeted Hours Standard Rate (Rs.) Standard Cost for Budgeted Hours (Rs.) 4900.00 3.88 19000.00 8000.00 2.75 22000.00 Fixed OH Spending Variance = Actual fixed overhead - Budgeted fixed overhead 3000.00 Favourable Variance exists since Budgeted Hours > Actual Hours

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