The following information is available for BCo. BCo makes micro-wove ready meals
ID: 2477599 • Letter: T
Question
The following information is available for BCo. BCo makes micro-wove ready meals. Prepare a flexible budget for production costs based on actual output. Calculate the material variances label the variances. Label the variances, and indicate whether the variance is favorable or unfavorable. Based on your answer to the previous question, identify one possible cause for each variance. Please do not say they used more or less of the input than planned (Extra point if you can find one possible cause to explain both variances.)Explanation / Answer
Actual no. of units produced A 5800 No. of pounds/hrs per pound/hr rate Cost per unit C Amount A*C Material 1.1 5 5.5 31900 Labor 0.2 12 2.4 13920 Variable OH 1/3 9 3 17400 Fixed overhead 7733 Total unit cost 70953 Fixed overhead No of oven hours 6000/3 2000 Flexible 5800/3 1933.33 hours For each hour 4 Total fixed overhead 7733 Ans 10 Material Price Variance Actual quantity*(Actual Rate-Standard Rate) 5600*(5.5-5) 2800 U Material quantity Variance Standard rate*(Actual Qty-Standard Qty for actual output) 5*(5600-(5800*1.1)) -3900 F Total material variance -1100 F Ans 11 Material Price Variance There could be rise in thegeneral price level of material in the market due to which the company had to purchase at a higher price Or may be a higher quality material have been purchased which gives rise to material price variance Material quantity Variance More skilled/experienced workers were used in production so the wastage/defective/spoilage were less and there was efficient use of material so it gave rise to favorable variance Use of good machinery/equipment and under good supervision also gives rise to favorable quantity variance
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