f5 progref5_progress_test_answer_question_4ss test answer question 4

8/19/2019 F5 ProgreF5_Progress_Test_Answer_Question_4ss Test Answer Question 4

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Question 4 Farmseeds

Tutorial help and key points

Part (a) is fairly a simple variance question requiring your basic understanding

in developing variance formulae, (keeping in mind S for standard and A for

actual results) and all numbers should work out from the formulae. Then you

must convert budgeted contribution to actual simply by adding favourable

variances to budgeted contribution and deducting any adverse ones. Make sure

you only show fixed overheads expenditure variance under marginal costing

approach.

In part (b) you have to explain the variances calculated in part (a) simply

relating to the company details, make sure you discuss it briefly as only 6 marks

are allocated and there will be quite a few variances. So do not run over the

time scale.

Marking scheme

(a) Budgeted contribution (1 mark)

Sales price (1 mark)

Sales volume contribution: (1 mark)

Price (1 mark)

Usage (1 mark)

Rate (1 mark)

Efficiency (1 mark)

Idle time variance (1 mark)

Rate or Expenditure (1 mark)

Efficiency (1 mark)Actual contribution (1 mark)

Less: Budgeted fixed costs (1 mark)

Adjustment of fixed OH expenditure variance (1 mark)

Actual profit (1 mark)

(Total 14 marks)

(b) Performance measurement 2 marks each for three valid assessments

discussed/max 6

(Total 6 marks)

TOTAL = 20 marks


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(a)

Operating statement

$Budgeted contribution (8,400 units x $50) 420,000

Adjustment of sales variances:

Sales price 120,000 ASales volume contribution: 20,000 A

Budgeted contribution at actual sales 280,000

Adjustment of cost variance:

Direct Materials Variances:

Price 60,000 FUsage 0

Direct Labour Variances:

Rate 18,960 AEfficiency 20,000 F

Idle time variance 15,600 F

Variable Overheads variances:

Rate or Expenditure: 30,000 A

Efficiency 30,000 FActual contribution 356,640

Less: Budgeted fixed costs (210,000)

Adjustment of fixed OH expenditure variance 10,000 F

Actual profit 156,640

Workings: Variances: $

Sales price: Revenues should have been $240 x 8,000 tonnes 1,920,000

Actual Revenues 1,800,000Variance 120,000 A

Sales volume contribution:

(Budget volume – actual volume) x Standard contribution $20,000 A

Direct Materials Variances:

Price should have spent $60 x 12,000 tonnes 720,000Actual cost was 660,000

60,000 F

Usage should have used 1.5 tonnes x 8,000 t 12,000 t*Actual usage 12,000 t

0

x Standard price $60 0

Direct Labour Variances:Rate should have cost $18 x 15,800 hours paid 284,400


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actual paid 303,360$

18,960 A

Efficiency should have worked 2 hours x 8,000 tonnes 16,000hrshours

Have actually worked 15,000hrsVariance x standard rate of $18/0.9 per hour 20,000 F

Excess Idle time variance Budgeted idle time – actual idle time)

X standard rate per hour(1,580 – 800) x $20 15,600 F

Variable Overheads variances:

Rate or Expenditure : should have incurred 15,000 hrs x $30 450,000Have actually incurred 480,000

30,000 A

Efficiency should have worked for 16,000 hrsActually worked for 15,000 hrs

At standard rate $30 per hour 30,000 F

Fixed Overheads expenditure variance

Budgeted fixed overheads 210,000Actual fixed overheads 200,000

10,000F

t* stands for tonnes

(b)

From the results in part (a) it is apparent that FS has had a poor performance over the

period and actual profit achieved was only $156,640 as compared with budgeted profit

figure of $210,000. This can be explained as below considering all the factors involved.

Sales

Both sales price and sales volume variances were adverse by $120,000 and $20,000

respectively, which shows that despite reducing the selling prices, sales demand could not

be boosted up. It might be due to general economic downfall, or due to product quality

being poor, or poor marketing. Sales area was the main concern in profits being down from

the budgeted figures.

Direct materials

Price variance is favourable and usage is nil, which reflects a positive performance from the

purchasing and production side, they controlled the cost by buying from right sources and

producing within budget parameters of wastage. Overall it improved the profits.


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Direct Labour

Labour rate variance shows an adverse result, which is due to the company paying higher

rate than expected, and right results were achieved in efficiency and cutting down idle time.

Overall it improved the profits.

Variable overheadsOverall the variance is nil. The rate variance is adverse like labour rate, reflecting general

rise in cost of resources in the society, where as efficiency variance is favourable showing

better internal controls in production process.

Fixed overheads

Fixed overheads were $10,000 more than budgeted, again reflecting a rise in general costs

in the economy, like variable overheads and labour.

f5 progref5_progress_test_answer_question_4ss test answer question 4

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