CWOT Ltd manufactures a number of products including the CWOFT all materials for the CWOFT are imported from the EU. The product is in the maturity stage of the product lifecycle and its costs have stabilised, CWOT applies the following standards. Each unit of CWOFT needs: 10 hours of labour at £9 per labour hour and 6 kg of material at a price of £7 per kg Variable overheads are recovered on a labour hour basis at a rate of £5 per hour. In the last period, the ACTUAL results for CWOFT were: Production (units of CWOFT) 3,000 Labour hours 42,000 at a total cost of £399,00 15,000 kg of material at a total cost of £135,000 Variable overheads were 231,000 As the management accountant you have been asked to look into these results and investigate any variances

You are required to:

a, Produce the following variances

i. Material price and usage

ii. Labour rate and efficiency

iii. Variable overhead expenditure and efficiency

The managing director of CWOT was furious at the results and called a management meeting during which he was less than complimentary about the senior managers, tempered a little by the materials usage variance. Somewhat stung by the criticism the purchasing manager explained that due to the imposition of tariffs and a fall in the value of sterling following Brexit the cost of the materials has risen to £9.25 The production manager pointed out that following a value analysis exercise the CWOFT had been redesigned to use less material and now only required 4.5 kg of material, however, the redesign of the unit also led to an increase in Labour hours required and the standard time per unit has increased to 12 hours per unit. Due to a surprise increase in the minimum wage and the knock-on effect to higher level salaries, the market rate for the labour required to make the CWOFT has risen to £9.75 per hour. Both the purchasing and production managers expressed surprise that the information used was so out of date and suggested that the exercise be carried out again with the updated information.

Recalculate and interpret the material and labour variances, from the Requirements in part and above, on a planning and operational basis.

Answer rating: 100% (QA)

A1 MATERIAL PRICE VARIANCESTANDARD PRICEACTUAL PRICEACTUAL QUANTITY 7915000 30000ADVERSE ACTUAL PRIC... View the full answer