Memflash Inc. manufactures 500 megabyte flash drives that are compatible with a popular portable storage device. Memflash sells flash drives directly to computer retail chains and to direct marketing organizations that resell flash drives under their house brands. The flash drives retail for an average of $9.60 per unit, and compete with well-known brands that retail for between $12.00 and $14.40 per flash drive.
Memflash’s CFO has provided you with the following budgeted standards for the month of February 2013:
Budgeted average wholesale selling price per unit ........ $4.80
Total direct material standard cost per drive ......... $1.02
Direct manufacturing labour
Direct manufacturing labour standard cost per hour ..... $18.00
Average labour productivity (drives per hour) ........ 300
Direct marketing cost per unit ............... $0.36
Total fixed overhead .................$1,080,000
The VP of Marketing forecasts sales of 1,660,500 units for the month.
On March 7, the VP of Planning and Control meets with the executive committee to discuss February results. He reports as follows:
◆ Unit sales totalled 1,400,000 units.
◆ Actual average selling price declined to $4.86.
◆ Productivity dropped to 280 drives/hour; however, because of favourable market conditions, the actual price per unit dropped to $0.94.
◆ Fixed costs came in $33,000 below plan.
◆ All other costs were incurred at their standard rates.
As the senior financial analyst, you are asked to calculate the following:
1. Static-budget and actual operating income.
2. Total static-budget variance.
3. Flexible-budget operating income.
4. Total flexible-budget variance.
5. Total sales-volume variance.
6. Price and efficiency variances.
7. What is the material-price variance? What is the labour-price variance?
8. What is the material-efficiency variance? What is the labour-efficiency variance?