Sawdust Ltd manufactures a single product, a laminate bulk product which is sold to a business customer
Question:
Sawdust Ltd manufactures a single product, a laminate bulk product which is sold to a business customer for further processing. The standard cost of a block of the intermediate product is £197 made up as follows:
£
Direct materials 12 kilograms at £6 per kg 72.00
Direct labor 5 hours at £5.50 per hour 27.50
Variable overheads 5 hours at £7.50 per hour 37.50
Fixed overheads 5 hours at £12 per hour 60.00
197.00
The standard selling price of the product is £280. The monthly budget projects
production and sales of 750 units. The company operates an absorption costing system
and recovers overhead through a Direct Labour Hour basis.
Actual figures for the month of December 2018 are as follows:
Sales 730 units at £270 per unit
Production 730 units
Direct Labour 3,750 hours costing £21,600
Direct materials 7,300 kgs costing £38,690
Variable overheads £25,000
Fixed overheads £42,000
You are required to:
(a) Calculate the following variances and explain why such variances may arise:
i) Total Fixed overhead
ii) Fixed overhead expenditure
iii) Fixed Overhead Volume
iv) Fixed overhead volume capacity
v) Fixed overhead volume efficiency
vi) Variable overhead expenditure
vii) Variable overhead efficiency
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd Canadian edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang-Hsuan Chen, Gail Cook