ACCA F5 Performance Management - 2010 - Study text

Answers

Summary

Fixed cost

Variable cost

per unit

$

Direct materials ($130,000/10,000 units) -

13.00

Direct labour (excluding overtime) 49,000

2.50

Production overhead 18,000

7.00

Administration overhead (all fixed) 26,000

-

Selling and distribution overhead 18,000

1.30

Budgeted cost allowance – quarter 3

Production units: 15,000

Sales units: 14,500

$

Materials (15,000 × $13)

195,000

Labour ($49,000 + (15,000 × $2.50))

86,500

Overtime (1,000 × $2.50 × 50%)

1,250

Production 0verhead ($18,000 + (15,000 × $7))

123,000

Administration overhead 26,000

Selling and distribution ($18,000 + (14,500 × $1.30))

36,850

468,600

30 Cost estimation

(a) High low method

$

Total cost of 22,000 units

74,000

Total cost of 12,000 units

52,000

Therefore variable cost of 10,000 units

22,000

Variable cost per unit = $22,000/10,000 units = $2.20.

$

Total cost of 22,000 units

74,000

Variable cost of 22,000 units

(× $2.20)

48,400

Therefore fixed costs 10,000 units

25,600

Fixed costs = $25,600 per month.

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In a month when output is 15,000 units, the estimated total costs are:

$

Fixed costs

25,600

Variable costs

(15,000 × $2.20)

33,000

Total costs

58,600

(b)

Linear regression analysis

Workings

Output Total cost

x y

x

2

xy

y

2

17 63

289

1,071

3,969

15 61

225

915

3,721

12 52

144

624

2,704

22 74

484

1,628

5,476

18 68

324

1,224

4,624

84 318

1,466

5,462

20,494

b =

55

,464

()

− 84

()

318

()

51,466

()

− 84

()

2

=

27,310 − 26,712

7,330 −7,056

=

598

274

= 2.18

a =

318

5

−

2.18 84

()

5

= 63.6 – 36.6 = 27.0

Variable costs = $2.18 per unit and fixed costs per month are $27,000.

$

Fixed costs 27,000

Variable costs

(15,000

× $2.18)

32,700

Total costs 59,700

Answers

(c) Correlation coefficient

r =

598

274

()

520,494

()

− 318

()

2

⎡

⎣

⎢

⎤

⎦

⎥

=

598

274

()

102,470 −101,124

()

=

598

274

()

1,346

()

=

598

607.3

= 0.98

A correlation coefficient close to + 1 indicates very strong positive correlation.

The estimate of total costs using linear regression analysis should be very

reliable.

31 Time series

Sales are recorded for each quarter. We can therefore assume that seasonal

variations are quarterly, which means that there are four ‘seasons’ in each cycle.

A trend line has already been calculated. Seasonal variations can be estimated by

taking the average of historical variations. The total of all variations in one cycle

must add up to 0.

Periods

Quarter

1

Quarter

2

Quarter

3

Quarter

4

Total

variation variation

variation

$000 $000 $000 $000 $000

3 – 6 – 12 – 20 + 26 + 6

7 – 10 – 14 – 17 + 22 0

11 - 14 – 7 – 17 + 30 + 3

Average – 11 – 18 + 26 + 3 0

The average seasonal variations add up to 0 exactly; therefore no further

adjustments are needed. These average variations will be used for the purpose of

sales forecasting.

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Period Trend

(1,080 + 40P)

Seasonal

variation

Forecast

sales

$000 $000 $000

17 1,760 -–11 1,749

18 1,800 – 18 1,782

19 1,840 + 26 1,866

20 1,880 + 3 1,883

The sales forecast should be reliable only if the trend in sales that has happened in

the past continues into the future, and that the estimates of seasonal variations are

reasonably accurate. Some error in forecasting is inevitable even if these

assumptions are valid.

There is also some risk of error in the estimate of the trend line, but this can be

evaluated using a correlation coefficient, assuming that the trend line was calculated

using linear regression analysis.

There is also some risk of a small error in the estimate of seasonal variations, where

simple arithmetical averages of variations in the past three years have been used.

32 Reconcile

Workings

Direct materials total cost variance

$

14,800 units should cost (× $8)

118,400

They did cost 125,000

Direct materials total cost variance 6,600 (A)

Direct labour total cost variance

$

14,800 units should cost (× $6)

88,800

They did cost 92,000

Direct labour total cost variance 3,200 (A)

Fixed production overheads total cost variance

$

14,800 units: standard fixed overhead cost (× $12)

177,600

Actual fixed overhead cost 170,000

Fixed production overheads total cost variance 7,600 (F)

Note: The fixed overhead total cost variance can be divided into:

Answers

(a) an expenditure variance

(b) a volume variance

Fixed production overheads expenditure variance

$

Budgeted fixed overhead expenditure (14,000 × $12)

168,000

Actual fixed overhead expenditure 170,000

Fixed production overheads expenditure variance 2,000 (A)

Fixed production overheads volume variance

units

Budgeted units of production 14,000

Actual units produced 14,800

Fixed production overheads volume variance in units 800 (F)

Standard fixed overheads per unit $12

Fixed production overheads volume variance in $ $9,600 (F)

Solution

Reconciliation statement

$

Budgeted costs for the month (14,000 units × $26)

364,000

Extra standard costs of additional production (800 units × $26)

20,800

Standard costs of actual production (14,800 units × $26)

384,800

Cost variances

Direct materials total cost variance 6,600 (A)

Direct labour total cost variance 3,200 (A)

Fixed overheads expenditure variance 2,000 (A)

Fixed overheads volume variance 9,600 (F)

Actual total costs in the month 387,000

33 Simple variances

(a)

Direct labour rate variance

$

13,450 hours should cost (× $6)

80,700

They did cost 79,893

Labour rate variance 807 (F)

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Direct labour efficiency variance

hours

3,350 units should take (× 4 hours)

13,400

They did take 13,450

Efficiency variance in hours 50 (A)

Standard rate per hour $6

Direct labour efficiency variance in $ $300 (A)

(b)

Sales price variance

$

850 units should sell for (× £9) 7,650

They did sell for 7,480

Sales price variance 170 (A)

Sales volume variance, absorption costing

units

Actual sales volume (units) 850

Budgeted sales volume (units) 800

Sales volume variance in units 50(F)

Standard profit per unit $2

Sales volume variance (profit variance) in $ $100 (F)

Sales volume contribution variance, marginal costing

Sales volume variance in units 50 (F)

Standard contribution per unit ($9 - $4) $5

Sales volume variance (contribution variance) $250 (F)

(c)

(i)

Fixed production overhead total cost variance

$

Standard fixed overhead cost of 14,600 units (× $20)

292,000

Actual fixed overhead expenditure 325,000

Fixed overhead total cost variance (under-absorption) 3,000 (A)

Answers

(ii)

Fixed production overhead expenditure variance

$

Budgeted fixed overhead expenditure (15,000 × $20)

300,000

Actual fixed overhead expenditure 325,000

Fixed overhead expenditure variance 25,000 (A)

Fixed production overhead volume variance

units

Budgeted production volume 15,000

Actual production volume 14,600

Volume variance in units 400 (A)

Standard fixed overhead rate per unit $20

Fixed production overhead volume variance in $ $8,000 (A)

(iii)

Fixed production overhead efficiency variance

hours

14,600 units should take × 4 hours)

58,400

They did take 58,000

Efficiency variance in hours 400 (F)

Standard fixed overhead rate per hour $5

Fixed production overhead efficiency variance in $ $2,000 (F)

Fixed production overhead capacity variance hours

Budgeted hours of work (15,000 × 4 hours)

60,000

Actual hours of work 58,000

Capacity variance in hours 2,000 (A)

Standard fixed overhead rate per hour $5

Fixed production overhead capacity variance in $ $10,000 (A)

Paper F5: Performance management

34 Manufacturing cost variance

Material price variance

$

120,000 kilos of materials should cost (× $6)

720,000

They did cost 825,000

Material price variance 105,000 (A)

Material usage variance

kilos

20,000 units should use (× 5 kilos)

100,000

They did use 120,000

Material usage variance in kilos 20,000 (A)

Standard price per kilo of material $6

Material usage variance in $ $120,000 (A)

Direct labour rate variance

$

500,000 hours should cost (× $4)

200,000

They did cost (× $5)

250,000

Labour rate variance 50,000 (A)

Direct labour idle time variance = 10,000 hours (A) × $4 per hour = $40,000 (A)

Direct labour efficiency variance

hours

20,000 units should take (× 20 hours)

400,000

They did take (500,000 – 10,000) 490,000

Efficiency variance in hours 90,000

(

A)

Standard rate per hour $4

Direct labour efficiency variance in $ $360,000

(

A)

Variable overhead total cost variance

$

20,000 units should cost (× $4)

80,000

They did cost 70,000

Variable overhead total cost variance 10,000

(

F)

Answers

Fixed production overhead expenditure variance

$

Budgeted fixed overhead expenditure (25,000 units × $100)

2,500,000

Actual fixed overhead expenditure 2,100,000

Fixed overhead expenditure variance 400,000

(

F)

Fixed production overhead volume variance

units

Budgeted production volume 25,000

Actual production volume 20,000

Volume variance in units 5,000

(

A)

Standard fixed overhead rate per unit $100

Fixed production overhead volume variance in $ $500,000

(

A)

Summary

Variance Favourable

Adverse

$

Material price

105,000

Material usage

120,000

Direct labour rate

50,000

Direct labour idle time

40,000

Direct labour efficiency

360,000

Variable overhead cost 10,000

Fixed overhead expenditure 400,000

Fixed overhead volume

500,000

410,000

1,175,000

Manufacturing cost total variance

$765,000

(A)

35 Variances and operating statements

(a) Standard absorption costing

Budgeted fixed overheads = $2,400

Budgeted labour hours = 2,400 hours

Budgeted fixed overhead rate per hour = $1.

Paper F5: Performance management

Materials price variance

$

25,000 kilos of materials should cost (× $1.50)

37,500

They did cost (× $1.48)

37,000

Material price variance 500 (A)

Materials usage variance

kilos

11,500 units of Product Q should use (× 2 kilos)

23,000

They did use 25,000

Material usage variance in kilos 2,000 (A)

Standard price per kilo of material $1.50

Material usage variance in $ $3,000 (A)

The material price variance and the material usage variance add up to the

material total cost variance.

Direct labour rate variance

$

2,320 hours should cost (× $3.20)

7,424

They did cost 7,540

Labour rate variance 116 (A)

Direct labour efficiency variance

hours

11,500 units of Product Q should take (× 0.20 hours)

2,300

They did take 2,320

Efficiency variance in hours 20 (A)

Standard rate per hour $3.20

Direct labour efficiency variance in $ $64 (A)

Variable overhead expenditure variance

$

2,320 hours should cost (× $0.80)

1,856

They did cost 1,750

Labour rate variance 106 (F)

Variable overhead efficiency variance = 20 hours (A) × $0.80 per hour = $16

(A).

ACCA F5 Performance Management - 2010 - Study text - Emile Woolf Publishing

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