Sticky Wickets manufactures Cricket Bats. In May 2010 the budgeted sales and pro

Question

Sticky Wickets manufactures Cricket Bats. In May 2010 the budgeted sales and production were 19,000 bats and the standard cost card is as follows:
                                                                                                             Std Cost                                          Std Cost
Material (2kgs @ $5/kg)                                                                         10
Labour (3 hrs at $12/hr)                                                                         36
Overheads (3 hrs @ $1/hr)                                                                     3
Marginal Cost                                                                                                                                                  49
Selling Price                                                                                                                                                    68
Contribution                                                                                                                                                     19
Total fixed costs in the period were budgeted at $100,000 and were absorbed on the basis of labour hours worked.

In May 2010 the following results were achieved.

40,000kg of wood were bought at a cost of $196,000, this produced 19,200 cricket bats. No inventory of raw materials is held. The labour was paid for 62,000 hours and the total cost was $694,000. Labour worked for 61,500 hours.

Variable overheads in the period were $67,000.

The sales price was reduced to protect the sales levels. However, only 18,000 cricket bats were sold at an average price of $65.

Total fixed costs in May were $107,000.

Required : Calculate the sales, materials, labour, variable overheads, fixed overheads variances and any other appropriate variances in as much detail as possible.

Explanation / Answer

Sales Price Variance = (Std Price - Actual Price)*Actual units sold

= ($68 - $65)*18,000 = $54,000 Adverse

Sales volume contribution margin = (Budgeted Sales volume - Actual Sales Volume)*Contribution per unit

= (19,000 - 18,000)*$19 = $19,000 Adverse

Materials Price Variance = (Actual Qty*Std Price) - Actual Material Cost

= (40,000 kgs*$5 per kg) - $196,000

= $200,000 - $196,000 = $4,000 Favorable

Materials Usage Variance = (Std Qty - Actual Qty)*Std Price

= [(19,200*2kg) - 40,000]*$5 per kg

= (38,400 - 40,000)*$5 = $8,000 Adverse

Labor Rate Variance = (Actual Hours*Std rate) - Actual Material Cost

= (62,000 hrs*$12 per hr) - $694,000

= $744,000 - $694,000 = $50,000 Favorable

Labor Efficiency Variance = (Std hrs - Actual hrs worked)*Std Rate

= [(19,200*3 hrs) - 61,500 hrs)*$12 per hr

= (57,600 hrs - 61,500 hrs)*$12 = $46,800 Adverse

Labor Idle Variance = (62,000 hrs - 61,500 hrs)*Std Rate

= 500*$12 = $6,000 Adverse

Variable Overhead rate Variance = (Actual Hours*Std rate) - Actual OH Cost

= (62,000 hrs*$1 per hr) - $67,000 = $2,000 Adverse

Variable OH Efficiency Variance = (Std Hrs - Actual Hrs)*Std Rate

= [(19,200*3 hrs) - 62,000]$1

= (57,600 - 62,000)*$1 = $4,400 Adverse

Budgeted fixed OH = $100,000

Budgeted Labor Hours = 19,000 units*3 hrs = 57,000 hrs

Budgeted Rate per hour = $100,000/57,000 hrs

Absorbed Fixed OH = ($100,000/57,000)*62,000 hrs = $108,772

Fixed Overhead Variance = Absorbed Fixed OH - Actual Fixed OH

= $108,772 - $107,000 = $1,772 Favorable

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