Lotus is a family run company in North London. They make and sell furniture for home and
Question:
Lotus is a family run company in North London. They make and sell furniture for home
and business purpose. Most of their products are made from bought-in components
which are assembled by the production department. One of its most popular products
that the company currently produces are storage shelves. Michael, the management
accountant of the company, introduced the system of standard marginal costing so
that budgets may be prepared, and variance analysis can be readily carried out. In
March, the standard costs of the storage shelves are as follows:
Standard Costs per unit:
Direct material (8 feet @ £4.00 per foot): £32
Direct labour (2 hours @ £12 per hour): £24
The standard output (production & sales): 400 units
Actual costs for April
Original Quantity | New Quantity | £ | |
Output (production & sales) | 260 units | 1151 | |
Direct materials | 3,700 feet | 4591 | £4.20 per foot |
Direct labour | 850 hours | 1741 | Total cost £8,100 |
The standard selling price of each storage shelve is £120. The total actual revenue
from the sale of the storage shelves was £65,000 in April.
1. Calculate total sales variance, sales price variance and sales volume variance.
2. Calculate material price & material usage variance.
3. Calculate labour rate & labour efficiency variance.
4. Comment on the material price & labour efficiency variance giving 2 possible
reasons for each variance.
5. Critically evaluate the relevance of variances in today's environment.
Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley