PartA(i)(ii)Directmaterialtotalvariance(standardunitsofactualproduction×standardprice)–(actualquantity×actualprice)[(4kg×1600)×￡10]–￡61600=￡64000–￡61600=￡2400(F)Theratefordirectmaterialtotalvariancesis£2,400/£64,000×100%=3.75%＞3%Directmaterialpricevarianceactualquantity×(standardprice－actualprice)=5600kg×(￡10-￡11)TricolplcFlexedBudgetForJuneOriginalBudget2,000unitsFlexedBudget1,600unitsActualresults1,600unitsVarianceF/A￡￡￡￡DirectMaterial80,00064,00061,6002,400FDirectLabour36,00028,80035,2006,400AVariableProductionOverheads4,0003,2003,2000InsuranceCosts2,2002,2002,400200ADepreciation15,0001,5001,5000RentandRates2,5002,5002,5000AdministrationOverheads2,0002,0002,200200ATotal104,200108,6004,400A=5600kg×￡1=5600(A)Therateofdirectmaterialpricevarianceis£5,600/£64,000×100%=8.75%＞3%Directmaterialusagevariancestandardprice×(standardunitsofactualproduction-actualunits)=￡10×(4kg×1600-5600kg)=￡10×800kg=￡8000(F)Therateofdirectmaterialusagevarianceis£8,000/£64,000×100%=12.5%＞3%Note:Whenaddingthepriceandusagevariancestheresultmustequalthetotalvariance.Therefore,￡5600(A)(price)＋￡8000(F)(usage)=￡2400(F)(total).Directlabourtotalvariance(standardhoursofactualproduction×standardrateph)－(actualhours×actualrateph)[(2h×1600)×￡9]－(3520h×￡10)=(3200h×￡9)－￡35200=￡28800－￡35200=￡6400(A)Therateofdiretclabourvarianceis6400/28800×100%=22.2%＞3%Directlabourratevarianceactualhours×(standardrateph－actualrateph)3520h×(￡9－￡10)=3520h×￡1=￡3520(A)Therateofdirectlabourratevarianceis£3,520/£28,800×100%=12.2%＞3%Directlabourefficiencyvariancestandardrateph×(standardhoursofactualproduction－actualhours)￡9×[2h×1600－3520h]=￡9×(3200h－3520h)=￡9×320h=￡2880(A)Therateofdirectlabourefficiencyvarianceis£2,880/£28,000×100%=10%＞3%Note:Whenaddingrateandefficiencyvariancestheresultmustequalthetotalvariance.Therefore,￡3520(A)(rate)＋￡2880(A)(efficiency)=￡6400(A)(total).Overheadtotalvariance(standardinsurancecost－actualinsurancecost)＋(standardadministrationoverheads－actualadministrationoverheads)(￡2200－￡2400)＋(￡2000－￡2200)=￡200(A)＋￡200(A)=￡400(A)Therateofoverheadtotalvarianceis£400/£4,200×100%=9.52%＞3%(iii)AnalysisMaterialvarianceFromtheactualbudget,wecanseethatthedirectmaterialtotalvarianceis￡2,400(F).TheDirectmaterialusagevarianceis￡8,000(F),theDirectmaterialpricevarianceis￡(5,600)(A).Thepossiblereasonsformaterialusagevariancesareinclude:Usenewmachinery.UsehigherqualityThepossiblereasonsformaterialpricevariance:Changesuppliers.Usehigherqualitymaterial.LossofdiscountLabourvarianceThedirectlabourtotalvarianceis￡(6,400)(A),theDirectlabourefficiencyvarianceis￡(2,880)(A)andtheDirectlabourratevarianceis￡(6,400)(A).Thepossiblereasonfordirectlabourefficiencyvariance:LowergradeworkforceShortageofskilledlaborThepossiblereasonfordirectlabourratevarianceHighergradeworkforcesShortageofskilledlabourOverheadvarianceThetotaloverheadvarianceis￡(400)(A).TheInsuranceandAdministrationvariancesare￡(200)(A).Thetotaloverheadvarianceis￡(400)(A).Thepossiblereasonsforoverheadvariances:UsingnewmachineryIncreasedadministrationcostToconcludeahigher-than-expectedwagesettlementforproductionoperates.DifficulttradingconditionsIntenselycompetitionRecommendationAccordingtoaboveanalysis,wecaneasilyunderstandtheorganization’scurrentsituation....
