You and your best friend decided to start a new manufacturing company. You have done a financial course as part of your studies and will be responsible for the finance department in the company. Both of you love to work with wood so you decided to focus the company on the manufacturing of bookshelves, made from strong wood you can buy at a good price from your dad, who owns a big plantation in Mpumalanga. The company uses a standard costing system in the manufacturing of the bookshelves. The standard cost per unit is as follows: Wood: 20 metres @ R100 per metre; Direct labour cost: 5 hours @ R50 per hour; Units budgeted for: 500 units 520 bookshelves were manufactured with the following actual information: Wood used: 11 000 metr @es R95 per metre; Labour hours worked: 2 700 hours @ R55 per hour. 1. Calculate the following variances, and clearly indicate if the variances are favourable or unfavourable and also provide two possible reasons for the variance and how it could have led to the variance. Note: Show all your formulas and calculations. 1.1 Material issue price variance. 1.2 Material quantity variance. 1.3 Total direct material variance. 1.4 Labour rate variance. 1.5 Labour efficiency variance. 2 Briefly explain to your friend why you would need to prepare a cash budget.
You and your best friend decided to start a new manufacturing company. You have done a financial course as part of your studies and will be responsible for the finance department in the company. Both of you love to work with wood so you decided to focus the company on the manufacturing of bookshelves, made from strong wood you can buy at a good price from your dad, who owns a big plantation in Mpumalanga.
The company uses a
Wood: 20 metres @ R100 per metre;
Direct labour cost: 5 hours @ R50 per hour;
Units budgeted for: 500 units
520 bookshelves were manufactured with the following actual information:
Wood used: 11 000 metr @es R95 per metre;
Labour hours worked: 2 700 hours @ R55 per hour.
1. Calculate the following variances, and clearly indicate if the variances are favourable or unfavourable and also provide two possible reasons for the variance and how it could have led to the variance.
Note: Show all your formulas and calculations.
1.1 Material issue price variance.
1.2 Material quantity variance.
1.3 Total direct material variance.
1.4 Labour rate variance.
1.5 Labour efficiency variance.
2 Briefly explain to your friend why you would need to prepare a
Step by step
Solved in 3 steps with 4 images
