Fragrance Limited manufactures mini-barbecue units for use in the summer months. These are sold to hardware...

Transcribed Image Text:

Fragrance Limited manufactures mini-barbecue units for use in the summer months. These are sold to hardware stores and supermarkets. (Fragrance Limited's budgeted price is $40 per unit). The company uses a standard marginal costing system in accounting for labour and material costs. The standard cost of a portable mini-barbecue, based on normal production output of 1,000 units, is as follows: $ Material - Aluminium (100 kilograms @ $0.15 per kg) Direct Labour (4 hours @ $2.50 per hour) Variable Overheads (4 hours @ $1.50 per hour) 15.00 10.00 6.00 For July 2020, Fragrance Limited accepted orders for 1,200 mini-barbecue units, with a total income of $54,000. The cost of production for July 2020 was: Actual Costs: $ Aluminium (132,000 Kilograms) Labour (5,100 hours) 15,840 13,260 7,650 36,750 Variable Overhead Total Variable Costs Fragrance Limited's management team has requested to receive a report on the financial performance for July 2020. Required: (a) Calculate the following variances: (i) Material price variance (ii) Material usage variance (iii) Labour rate variance (iv) Labour efficiency variance (13 marks) (b) Analyse the possible reasons for the variances reported in (a) above and recommend (12 marks) [25 marks] appropriate controls to deal with each of them. Fragrance Limited manufactures mini-barbecue units for use in the summer months. These are sold to hardware stores and supermarkets. (Fragrance Limited's budgeted price is $40 per unit). The company uses a standard marginal costing system in accounting for labour and material costs. The standard cost of a portable mini-barbecue, based on normal production output of 1,000 units, is as follows: $ Material - Aluminium (100 kilograms @ $0.15 per kg) Direct Labour (4 hours @ $2.50 per hour) Variable Overheads (4 hours @ $1.50 per hour) 15.00 10.00 6.00 For July 2020, Fragrance Limited accepted orders for 1,200 mini-barbecue units, with a total income of $54,000. The cost of production for July 2020 was: Actual Costs: $ Aluminium (132,000 Kilograms) Labour (5,100 hours) 15,840 13,260 7,650 36,750 Variable Overhead Total Variable Costs Fragrance Limited's management team has requested to receive a report on the financial performance for July 2020. Required: (a) Calculate the following variances: (i) Material price variance (ii) Material usage variance (iii) Labour rate variance (iv) Labour efficiency variance (13 marks) (b) Analyse the possible reasons for the variances reported in (a) above and recommend (12 marks) [25 marks] appropriate controls to deal with each of them.

Answer rating: 100% (QA)

Actual Direct Materials Cost 15840 Actual Units Standard Price Per Unit 19800 Direct Materials Price ... View the full answer