Answer to Question #191508 in Finance for Burkay

Question

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?

Answer 1

(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.