Problem 3 Variance Analysis (80 marks) SpaceShop Limited manufactures two electronic components (X and Y) in one of its factories. In line with SpaceShop's competitive strategy, the components are of very high quality. The components are specially produced for several large and profitable manufacturing customers who demand high quality inputs. Titanium and brass are the two main materials used in the manufacture of both components. SpaceShop Ltd uses standard and normal costing. The standard direct labour hours per unit of production, budgeted production quantities, budgeted sales information for a 13- week period are displayed in Exhibit 1. Exhibit 1 Standard amounts of inputs, budgeted production and budgeted sales information for electronic components Standard amount of Budgeted Budgeted input /unit production and sales total CM volume Component 0.40 direct labour hours 36,000 units $144,000 X 0.76kg titanium 0.3kg brass Component 0.56 direct labour hours 22,000 units $220,000 0.8kg titanium 0.4kg brass The standard wage rate for all direct workers was $12 per hour. Throughout the 13-week period 53 direct workers were employed, each working a standard 40-hour week. Budgeted manufacturing overhead for the 13-week period was $278,400 and it was allocated to products on the basis of units produced. Actual production and actual sales information for the 13-week period is displayed in Exhibit 2. Exhibit 2 Actual production and sales information for 13-week period Production and sales volume Component X 35,000 units Component Y 25,000 units Direct wages paid 333.420 Titanium purchases (and usage) 47,000 kilograms $851,100 Titanium price variance $4.300F Brass purchases (and usage) 19,000 kilograms $114,000 Brass price variance $950U Manufacturing overhead $292,000 The company forecast a 25% market share in total units for the period. The company use historical data to replicate the same product mix with that of the total market. Reliable industry sources indicate that the total number of units sold on the market was 5% higher than budgeted. Required: (a) Calculate the total direct labour variances (i.e. rate and efficiency) for the period. (10 marks) (b) Calculate the standard purchase price (per kg): (10 marks) i. fortitanium ii. for brass (c) Calculate the direct materials quantity variance for the period. (20 marks) i. for titanium ii. for brass (d) Calculate the under-/over-allocated manufacturing overhead for the period. (10 marks) (e) Assume that all variances were recorded in separate variance accounts. Provide the journal entries to close all DL variances, DM variances and the under-/over-allocated overhead variance to Cost of Goods Sold (COGS). (5 marks) (f) Calculate the market share variance and market size variance for the period. (15 marks) (g) Discuss the managerial implications of the wvariances calculated above. (10 marks) 1. for production input variances ii. for market share and market size variances