Answer to Question #191508 in Finance for Burkay

Question #191508

Section A - Question 1 Variance Analysis


Number of notebooks

30,000

Selling price

£24 per notebook

Variable costs

Direct material standard costs

2 square meter of paper input allowed per unit;

£0.40 per square meter paper

Direct labour standard costs

4 min of manufacturing labour allowed per unit;

£30/h

Total fixed costs

£500,000

The actual results for April were:

Number of notebooks

20,000.00

Revenues

500,000.00

Variable costs

Direct material

£16,650, 1.85 sqm per notebook, £0.45 per sqm

Direct labour

£44,000.00 , 4 min of manufacturing labour, £33/h

Total fixed costs

£595,000


a) Prepare a variance analysis report for April. Calculate level 2 variances for revenues, fixed costs and operating profit, as well as level 2 and level 3 variances for variable costs.

b) Comment on the results: What can management learn from Rachel’s analysis?


1
Expert's answer
2021-05-11T14:54:44-0400

(a)



(b) From Rachel’s analysis the management learn that there is over-performance for this particular reporting period. This can be seen from the positive operating profit.


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