Cloudsdale plc makes a wide range of motor accessories in a mass production environment. Standard costing is
Question:
Cloudsdale plc makes a wide range of motor accessories in a mass production environment. Standard costing is used to control performance and variances are incorporated into weekly management reports using the planning and operational approach. The following data relates to one of their most popular products.
1. The standards set at the beginning of the period include the following:
Selling price per unit................................................................ £80
Direct materials price per kilo.....................................................£5
Direct materials usage per unit................................................7 kilos
Other variable costs (per unit).................................................. £20
Budgeted sales (week 4)..................................................48,000 units
2. Information extracted from the reports for the first 3 weeks is given below:
Variances | Week 1 | Week 2 | Week 3 |
Materials usage (£) | 100,000F | 20,000F | 45,000A |
Materials usage (%) | 25 | 4.2 | (2.6) |
Materials price (£) | 119,000F | 32,000F | 16,000A |
Materials price (%) | 6.3 | 1.2 | (0.9) |
Sales volume (£) | 125,000A | 75,000A | 75,000A |
Sales volume (%) | (9.3) | (5) | (5.8) |
Selling price (£) | 0 | 0 | 219,520A |
Selling price (%) | 0 | 0 | (5.6) |
3. The following information relating to actual results for week 4 is also available:
Total sales..........................................................................49,000 units
Average selling price per unit..................................................£75.44
Total direct materials used..................................................353,000 kilos
Total direct materials cost..................................................£1.861m
4. Revised standards (set after the 4-week period):
Materials price per kilo...............................................£5.75
Selling price per unit .................................................. £78
Required:
1. Calculate direct materials and sales variances for week 4 in monetary and percentage terms, using the revised standards and including planning variances where appropriate.
2. Discuss the results over the 4 week period, commenting on those variances which you deem to be material and any trends which are evident from the results.
Introduction to Statistical Quality Control
ISBN: 978-1118146811
7th edition
Authors: Douglas C Montgomery