Master Budgets + Variance Analysis

Since preparing the master budget for the Cork Shop for Dec - Jan 2022 (in your assignment) you have been asked to review their first month's (January) performance and prepare direct materials and direct production variance calculations ready to present to the owners at your next meeting.

Use the following information:

Budgeted Direct Materials cost per product:

	Cork	Zip/Clasp
Cork Zip Wallet - Kylie	$ 5.25	$ 3.50
Cork Coin Purse	$ 4.15	$ 3.50
Natural Cork Wallet	$ 6.00	$ 1.75

Budgeted Manufacturing Time/Production Machine Hours per product:

$ 32.50	per hour
Cork Zip Wallet - Kylie	0.5	hour
Cork Coin Purse	0.25	hours
Natural Cork Wallet	0.6	hours

Production Budget	DM Cost	January
Cork Zip Wallet - Kylie	$ 8.75	175
Cork Coin Purse	$ 7.65	135
Natural Cork Wallet	$ 7.75	190
Direct Materials used in production
Cork Zip Wallet - Kylie	$ 1 531.25
Cork Coin Purse	$ 1 032.75
Natural Cork Wallet	$ 1 472.50
Total Direct Materials Used	$ 4 036.50
Target Ending Direct Materials Inventory	$ 906.50
Less Beginning Direct Materials Inventory	$ 500.00
Total Purchases of Direct Materials	$4 443.00

Budgeted Direct Production
Direct Production Cost Required:	Time	Cost	Total
Cork Zip Wallet - Kylie	0.50	$ 32.50	$ 16.25
Cork Coin Purse	0.25	$ 32.50	$ 8.13
Natural Cork Wallet	0.60	$ 32.50	$ 19.50
Production Budget	DP Cost	January Units	January Cost
Cork Zip Wallet - Kylie	$ 16.25	175	$ 2 843.75
Cork Coin Purse	$ 8.13	135	$ 1 097.55
Natural Cork Wallet	$ 19.50	190	$ 3 750.00
Total Direct Production Cost Used			$ 7 691.30

Required:

1. If the actual production units and costs for January were as below, complete the Actual and Variance columns highlighted in grey section of the 3^rd table below. [10 marks]

Actual unit costs	Cork	Zip/Clasp
Cork Zip Wallet - Kylie	$ 5.00	$ 3.00
Cork Coin Purse	$ 4.50	$ 4.00
Natural Cork Wallet	$ 6.50	$ 2.00

Actual Production Budget	DM Cost	January
Cork Zip Wallet - Kylie	$ 8.00	150
Cork Coin Purse	$ 8.50	120
Natural Cork Wallet	$ 8.50	210

Direct Materials cost used in production	Budget	Actuals	Variance	F/U
Cork Zip Wallet - Kylie	$ 1 531.25
Cork Coin Purse	$ 1 032.75
Natural Cork Wallet	$ 1 472.50
Total Direct Materials Used	$ 4 036.50

1. Calculate the Direct Materials Price Variance and Direct Materials Efficiency Variance for Cork Coin Purse to indicate what caused the total variance in the cost of the materials used in production. Assume that the materials purchased equals the materials used in production. Indicate whether the resulting variance is favourable or unfavourable [5 marks]

1. Provide two (2) potential reasons why the cost of the cork materials and zip/clasps may have decreased in January. [5 marks]