Budgeting system

Q1 a)Reason for using flexed budget

Flexed budget is prepared based on actual sales volume. Therefore, when co
like for like comparison. This is because, the flexed budget figures and the actua
The impact of difference in sales volume between original budget & actual budget
Budget variance based on flexed budget will lead to fair assessment of divisiona

b) Budgetary control statement for Novemebr 2004

Flexed
budget Actual
Sales and production volumes (units) 5,500 5,500
$000 $000
Sales revenue (£200*5500) 1,100 1,078
Direct material (£50*5500units) 275 286
Direct labour 160 176
Other manufacturing costs 320 308
Division fixed overhead 200 190
Profit 145 118

Workings: £
Standard DMC per unit 50 (£250,000/5000)
Direct labour:
Fixed 50,000
Variable (£20*5500) 110,000
160,000
Other manufacturing costs:
Variable costs per unit
Total fixed cost
Flexed other manufacturing cost (5500 unit)

Q2 Luxury division
Quarterly rolling budget for current year
Q1 Q2 Q3 Q4 Total
C$'000 C$'000 C$'000 C$'000 C$'000
Revenue 10,400 12,240 11,388 7,247 41,275
Cost of sales - 6,240 - 7,020 - 6,370 - 4,654 - 24,284
Gross profit 4,160 5,220 5,019 2,593 16,992
Distribution costs - 624 - 734 - 682 - 434 - 2,474
Administration costs - 2,296 - 2,243 - 2,187 - 2,132 - 8,858
Operating profit 1,240 2,243 2,150 27 5,660

Workings: Q2 Q3
Revenue 12,000 11,000
Expected increase in sales volume 240 220
12,240 11,220
Increase in selling price (1.5%) - 168
Revised revenue 12,240 11,388

Cost of sales 7,120 6,460

Impact of increase in sales volume (2%) 142 129
7,262 6,589
Cost of ingredient imported from Veeland (50%) 3,389 3,075
Others (50%) (50% of the cost of sales) 3,631 3,295
Revised 7,020 6,370

Distribution costs ( variable cost) 720 660

Impact of increase in sales volume 14 13
734 673
Cost of fuel (70%) (increase from 60% to 63%)(163/160) - 480
Others (30%) - 202
Revised 734 682

Admin costs:
Q2 =(2300*0.975) 2,243
Q3 =(2243*0.975) 2,187
Q4 =(2186*0.975) 2,131
les volume. Therefore, when compared against with the actual budget. It will lead to
ed budget figures and the actual result figures are based on actual sales volume.
n original budget & actual budget is removed to show fair and accurate budget variances.
to fair assessment of divisional managers performances analysis.

Budget
variance
-
$000
22 Adverse
- 11 Adverse
- 16 Adverse
12 Favourable
10 Favourable
17 Adverse

(£250,000/5000)

$ 40
$ 50,000
$ 320,000

Q4
7,000
140
7,140
107
7,247

4,720
94
4,814
2,247
2,407
4,654

420
8
428
305
128
434
Quantitative techniques
Q1 a) Tonnes of waste to be collected in 2010 Addictive Model
Quarter (Q) Trend SV Forecast =Trend+ Seasonal Variations
1 5 2,125 - 225 1,900
2 6 2,150 225 2,375
3 7 2,175 125 2,300
4 8 2,200 - 125 2,075
Total 8,650
Q1 Q2 Q3 Q4
Variation - 200 250 150 - 100
Adjustment - 25 - 25 - 25 - 25 100/4
Seasonal variation - 225 225 125 - 125

b) Budgeted operating cost for 2010: $000

Variable costs =0.16*1.05*8650 1,467
Fixed costs =618*1.05 649
Total 2,116

(x) (y) (x*y) (x^2)

2100 950 1995000 4410000 N=4 ( number of pairs of data)
2500 1010 2525000 6250000
2400 1010 2424000 5760000
2300 990 2277000 5290000 Y=618+0.16x
9300 3960 9221000 21710000

b =(4*9221000-9300*3960)/(4*21710000-(9300)^2) = 0.16
a =(3960/4)-(0.16*9300)/4 = 618

c) Advantages of incremental budgeting

Incremental budgeting will not take too much of managers time to prepare budget. The data needed
to prepare budget is readily available and managers can preprare the budget quickly using the data
available internally.
Incremental budgeting is simple and easy to understand. The non-financial managers in local
government can easily adapt to incremental budgeting.
 Disadvantages of incremental budgeting
Incremental budgeting does not encourage managers to change current practices. It assume current
practices are highly efficient, hence does not requre improvement.
Incremental budgeting could encourage overspending. There is no incentive to reduce costs. There is
a strongly possibility of tax payers money being wasted through overspending.

Q2 a) Year Quarter Qtr number Trend SV Forecast

2012 3 9 1681.25 0.9042 1,204
2012 4 10 1725 1.0784 1,483
Average
Year Quarter Sales CMA variation =sales/Centred Moving Average
2011 1 1,200 1,068.75 1.1228
2 1,000 1,112.50 0.8989
3 1,050 1,162.50 0.9032
4 1,300 1,206.25 1.0777
2012 1 1,400 1,243.75 1.1256
2 1,150 1,287.50 0.8932

Q1 Q2 Q3 Q4
2010 - - 0.9080 1.0820
2011 1.1228 0.8989 0.9032 1.0777
2012 1.1256 0.8932 - -
2.2484 1.7921 1.8112 2.1597
Average variation=(all/2) 1.1242 0.8961 0.9056 1.0799 4.0057
Adjustment - 0.0014 - 0.0014 - 0.0014 - 0.0014 - 0.0057
Seasonal variation 1.1228 0.8946 0.9042 1.0784 4.0000

Average trend in CMA =(1287.5-1068.75)/(6-1) 43.75

Trend equation T =1287.5+43.75Q
Quarter 0 = Quarter 2 of 2012

b) Budgeting style in Sauce Co

Based on the information provided, the budgeting system in Sauce Co appears to be a top-down approach.
The managing director prepare and impose sales budget without consulting the departmental managers. This
resulted in unrealistic and inaccurate sales forecast. Inaccuracy in sales forecast would have affected the
 business operation in number of ways:
- the director's overly optimistic forecast would have resulted in overproduction. Actual production would have
exceeded sales volume. This would have resulted in high inventory holding and the inventory would have
deteriorated since it must be used within three months. This would have resulted in substantial financial
losses for the business.
- production activities are planned based forecasted sales. There is a strong possibility of resources being recruited
based on volume of activities to meet forecasted sales. The company could be having substantial idle or spare
capacity. This is because, sales is being overstated and the managers would have recruited additional resourced
to meet the sales.
- the staff have not been receiving bonuses for the last three years. This is due the fact that, the sales target is difficult
to achieve. Staff and managers unlikely to be motivated to work towards targets deemed as difficult to achieve. The
directors estimate and target setting would have demotivated staff and causing performance of the business to
decline.
- there is a possibility of the business experiencing high staff turnover. Good performing staff are likely to look other
opportunities in the market that reward them fairly. The business could lossing key personnel to their competitors.
- the current approach would have enable managing director to prepare budget quickly. The director does not need to
wait for feedback and input from lower level management. This would have precious management time.

Q3 a) Average time for 2 batches:

y = ax^b =200(2)^-0.152 180 hours per batch
b -0.152

b) Total time to produce 2 batches 360 hours

(2*180 hours)
c) Incremental time to produce 3rd batch
Cumulative Total
batches Average time per batch time
3 169.2417724 507.73
2 180 360.00
Incremental time for 3rd batch 147.73

Q4 Standard variable cost for the year $

Direct materials =10*2kg*60 1,200
Direct labour =323*£8 2,584
 Variable overheads =323*£4 1,292
Total 5,076

Total direct labour hours for 60 units

Cumulative Total
units Average time per unit y=ax^b time
50 5.52 276
10 4.69 46.900
322.784
Incremental time to produce 50th unit
Cumulative Total
units Average time per unit time
50 5.52 275.884
49 5.53 =10(49)^-0.152 271.20
4.69

Q5 (i) Time to produce 64th batch

Cumulative Total
batches Average time per batch time
64 11.03 =15(64)^-0.074 705.690
63 11.04 695.474
10.216

(ii) Total variable costs of 64th batch $

Labour £25/h*10.216 255.40
Materials £52/unit* 10 520.00
Variable overheads £5/h *10.216 51.08
826.48

(iii) Conditions to realise learning curve effect

- the production process of product Z should remain unchanged. The production flow and method
must remain identical. (1 marks)
- the process must performed by the same individual or group of workers. (1 marks)
- the production process must performed continuously and repeatedly under the same working
condition. (1 marks)
Q6 Actual monthly labour costs
Cumulative Total Incremental Labour
Month batches Average time per batch time time cost
July
August
September
October
November

Total time to produce 16 units

Cumulative Total
units Average time per batch time

Incremental time to produce 8th batch

Cumulative Total
units Average time per batch time

Q7 a) Cumulative Total labour

batches Average labour cost per batch costs

b) Approximate break-even sales level

Cumulative Total fixed Total
batches costs contribution
 The company need to sell more than 6400 units to break-even.

c) If the learning rate is 90%:

- this indicate the staff learning speed is slower than what was predicted.
- staff will take longer time to produce.
- average labour cost will increase.
- this will cause contribution per unit to decline, hence the break-even sales volume will
increase.

Q8 a) Cumulative Total Average

batches time time

Learning rate

DL efficiency variance:
Standard hours
Actual hours
Difference
Standard rate per hour
Variance

Actual learning rate = 79.92%

b) Total direct labour costs during the life of the product

Lifecycle output = 128 batches batches
Average time per batch hours per batch
b =log0.7992/log2 = -0.324
Total time for 128 batches hours
Actual rate per hour
Direct labour costs
Q9 a) Time to produce 32nd batch
Cumulative Average time Total
units per batch time

b) Target profit
Costs:
Labour
Other variable costs
Fixed costs
Sales revenue
Revenue from 1st 3500 units
Revenue from last 500 units
Selling price of last 500 units per unit

Cumulative Total
batches Average time per batch time
Standard costing
Q1 a) Commodity 3
Sales price operational variance $ 33,280 Favourable
Sales price planning variance $ -64,000 Adverse (£39.10-£41.60)*25600units

b) Sales mix variance

Std profit
ASV @ AM ASV @ SM Difference per unit
Commodity 1 29,800 30,643 - 843 $ 11.20
Commodity 2 30,400 28,600 1,800 $ 4.20
Commodity 3 25,600 26,557 - 957 $ 12.00
85,800 85,800

Sales quantity variance

Std profit
ASV @ SM BSV @ SM Difference per unit
Commodity 1 =30/84 30,643 30,000 643 $ 11.20
Commodity 2 =28/84 28,600 28,000 600 $ 4.20
Commodity 3 =26/84 26,557 26,000 557 $ 12.00
85,800 84,000 Total

FPOH absorption rate $ 4.00

Standard profit per unit:
Commodity 1 =£30-£18-(£4*0.2) $ 11.20
Commodity 2 =£35-£28.40-(£4*0.6h) $ 4.20
Commodity 3 =£41.60-£26.40-(£4*0.8h) $ 12.00

c) Performance analysis
Sales price operational variance $ 23,360 Favourable Sales mix variance
Sales price planning variance $ -54,680 Adverse Sales quantity variance
Total sales price variance $ -31,320 Adverse Sales volume variance
=sales mix + sales quantity
Comments of performance:
Business overall sales performance been bad during the quarter. Total sales variance for the qu
The total sales variance represent the revenue & profit lost as a result of poor sales perfo
However, the breakdown of sales variance shows, the performance been mix.
The business was badly affected by selling price fluactuation. During the quarter, the market pr
Adverse sales price planning variance of $54680 This is a factor beyond company
should not be held responsible for the variance. Despite the tough economic condition, the sa
negotiated selling price higher the average market price and this resulted in
This is a good performance and the sales manager should be given

During the quarter, sales manager appears to have changed the product mix. He
and increase the proportion of Commodity 2. The change in mix resulted in adverse mix varian
Commodity 2 has lower standard profit per unit. The manager need to provide an explanation f
Despited the recession in the country, the actual sales volume
This resulted in favourable quantity varainces of $16406.
The sales manager should be given credit for the favourable variance.

Overall business performance did not meet the budget. However, the performance of sales mana
measured using operational variances only. Planning variances are beyond management contro
 They should not held responsible. Total operational variance attributable to sales manager's per
Hence, the sales manager's performance was good.

Q2 A JUNE 2011 PAST YEAR Nobel

Budgetary control statement for May
Fixed Flexed Budget
budget budget Actual variance
Number of meals 1,200 1,560 1,560 -
$ $ $ $
Revenue: Food 48,000 62,400 60,840 - 1,560
Drinks 12,000 15,600 11,700 - 3,900
60,000 78,000 72,540 - 5,460
Variable costs:
Staff wages 9,216 12,672 13,248 - 576
Food costs 6,000 7,800 7,180 620
Drink costs 2,400 3,120 5280 - 2,160
Energy costs 3,387 4,234 3,500 734
21,003 27,826 29,208 - 1,382
Contribution 38,997 50,174 43,332 6,842
Fixed costs:
Manager's and chef's pay - 8,600 - 8,600 - 8,600 -
Rent, rates and depreciation - 4,500 - 4,500 - 4,500 -
- 13,100 - 13,100 - 13,100 -
Operating Profit 25,897 37,074 30,232 6,842

Workings for flexed budget figures

Revenue from food:
Meal A (780*£35) 27,300
Meal B (780*£45) 35,100
62,400
Revenue from drinks 15,600 (1560meals *£10)

Staff wages:
Average number of meals per day in May 65 per day
OT hours per day 12 per day
Hours worked in May:
Normal hours 50 orders/day 8👦*6hours *24days 1152
OT hours 8 *1.5 hours *24 days 288
1440
Wages 12,672

Food costs 12.5%-Food revenue 7,800

Drink costs 20%-Drink Revenue 3,120
Energy costs 4,234

b) Sales mix contribution variance $1,014 adverse

Sales mix contribution variance measures the contribution gained or lost as result of actual product mix being dif
than the standard mix.
The adverse mix variance could be as result of restaurant manager's decision to sell higher proportion of Meal A
and has lower contribution per meal.
Sales quantity contribution variance $11,700 favourable
 Sales quantity contribution variance measures the contribution gained or lost as result of actual sales volume bein
different than the budgeted sales volume.
The favourable quantity variances in Noble is due to actual number of meals sold were greater than the budget.

c) Additional variances to assess restaurant manager's performance

Manager's performance should be assessed based on outcome within his control. The decision to offer 50% disco
the owner, hence the financial impact of the decision is beyond manager's control. To assess performance fairly,
of drinks should be analysed in component of planning and operational. The manager should be held responsible
price variance only.
The reduced drink price appears to have affected the sales volume of drinks and probably the volume of meals. T
fairly, the impact of discount on sales volume variances must be quantified and removed from restaurant manage

Q3 Secure Net (December 2009) Original Revised

standard standard Actual Total actual quantity (kg)
Price ($/kg) $ 4.00 $ 4.80 $ 5.25 Total original std quantity
Usage (g/unit) 40.00 42.00 35.00 Total revised std quantity

a) Total material price variance (4-5.25)*3500kg(actual quantity) $ -4,375

Total material usage variance $ 2,000

b) Material price planning variance (£4-4.8)*3500unit $ -2,800

Material price operational variance (4.8-5.25)*3500 $ -1,575
Material usage planning variance (4000-4200)*4 $ -800
Material usage operational variance (4200-3500)*4 $ 2,800

c) Performance of production manager

The production manager is responsible for all production & buying issues
and material usage variance can be related to his performance. Total material variance during the
This indicate overspending and performance appears to be poor.

However, the manager's performance should be assessed based on controllable results only. His perfo
affected by external factors during the period. The increase in world price & change in securi
are factors beyond the manager's control. The impact of these factors were quantified by the
Total planning variance during the period was £3600 adverse for which the manager should not be he

The manager decided to change the supplier. The supplier charged higher price for better quality. The
decision resulted in adverse operational price variance of £1575 for which the manager should be hel
The better quality material appears to have benefited the business directly and indirectly. Directly the
improve drastically despite the increase in security card size. This resulted in favourable operatio
the manager should be given credit for his effort. The better quality material would have improved the
of security card produced by the company. This would have caused the drastic increase in production
Actual sales volume exceeded budget by 40000 units, and the manager should be given some credit fo

Total operational variance directly attributable to production manager is £1225 Favourable. Hence the

Q4 Choc Co
a)i) Material usage variance =material mix variance+material yield variances
=1417-2567
=-1150
SQ @ SM AQ @ AM Difference
Honey =20g*101,000units 2,020 2,200 - 180
 Sugar =15g*101,000units 1,515 1,400 115
Syrup =10g*101,000units 1,010 1,050 - 40
4,545 4,650

ii) Material mix variance (Standard mix~ actual mix)

AQ @ SM AQ @ AM Difference
Honey 20g/45g 2,067 2,200 - 133
Sugar 15g/45g 1,550 1,400 150
Syrup 10g/45g 1,033 1,050 - 17
same 4,650 4,650

iii) Material yield variance (Quantity)

Sugar
Standard quantity* standard mix SQ @ SM AQ @ SM Difference
Honey =20g*101,000units 2,020 2,067 - 47
Sugar =15g*101,000units 1,515 1,550 - 35
Syrup =10g*101,000units 1,010 1,033 - 23
4,545 4,650

b) Set-up costs
Expenditure variance: Efficiency variance:
Standard cost per set-up (£52800/330 set up) $ 160.00 Standard number of set-up for a
Actual cost per set-up (£60000/360 set up) $ 166.67 Actual number of set-ups
Difference $ -6.67 Difference
Actual number of set-ups 360 Standard cost per set-up
Expenditure variance Adverse $ -2,400 Efficiency variance

c) Steps in allocating overheads using ABC:

1st Determine cost pools. (Cost activity)(What activity -incurred costs)
2nd Determine the cost driver for each cost pools.
3rd Estimates the volume of the cost driver.
4th Calculate Cost Driver Rate (CDR)
5th Allocate the overhead cost to the product.
6th Calculate the cost per unit for each product.
 (£39.10-£41.60)*25600units

Mix
variance
$ -9,440
$ 7,560
$ -11,486
$ -13,366 Adverse

Quantity
variance
$ 7,202
$ 2,520
$ 6,684
$ 16,406 Favourable

per machine hour

Sales mix variance $ -13,366 Adverse

Sales quantity variance $ 16,406 Favourable
Sales volume variance $ 3,040 Favourable
=sales mix + sales quantity

er. Total sales variance for the quarter was $28280 Adverse
lost as a result of poor sales performance.
ance been mix.
During the quarter, the market price movement resulted in
This is a factor beyond company's management control. The sales manager
e tough economic condition, the sales manager successfully
his resulted in favourable sales price operational variance of $23360.
credit/ rewards for it.

he product mix. He reduce the proportion of Commodity 1&3.

mix resulted in adverse mix variance of $13366, since
r need to provide an explanation for the adverse mix variance.
exceeded budgeted sales volume by 1800 units.

ver, the performance of sales manager should be

es are beyond management control.
attributable to sales manager's performances is $25400 Favourable.

Adverse
Adverse
Adverse

Adverse
Favourable
Adverse
Favourable
Adverse
Adverse

NIL
NIL
NIL
Adverse

esult of actual product mix being different

to sell higher proportion of Meal A which is cheaper

 as result of actual sales volume being

sold were greater than the budget.

trol. The decision to offer 50% discount was made by

ntrol. To assess performance fairly, the sales price variance
manager should be held responsible for operational sales

and probably the volume of meals. To assess performance

nd removed from restaurant manager's performance.

Total actual quantity (kg) =(35*100000)/1000 3,500

Total original std quantity =(40*100000)/1000 4,000
Total revised std quantity =(42*100000)/1000 4,200

Adverse
Favourable

adverse
adverse
adverse
favourable

& buying issues Therefore, the material price variance

Total material variance during the month was £ 2375 Adverse.

n controllable results only. His performances has been

se in world price & change in security card size
ors were quantified by the planning variances.
which the manager should not be held responsible.

d higher price for better quality. The manager

or which the manager should be held responsible.
directly and indirectly. Directly the material usage
This resulted in favourable operational usage variance of £2800,
ty material would have improved the quality
ed the drastic increase in production and sales volume.
nager should be given some credit for the increase in sales volume.

ager is £1225 Favourable. Hence the performance been good.

l yield variances

Std price Usage

per kg variance
$ 20.00 $ -3,600
 $ 30.00 $ 3,450
$ 25.00 $ -1,000
Total $ -1,150 Adverse

Std price Mix

per kg variance
$ 20.00 $ -2,667
$ 30.00 $ 4,500
$ 25.00 $ -417
Total $ 1,417 Favourable

Std price Yield

per kg variance
$ 20.00 $ -933
$ 30.00 $ -1,050
$ 25.00 $ -583
Total $ -2,567 Adverse

Efficiency variance:
Standard number of set-up for actual output 400 (330/264000)*320000
Actual number of set-ups 360
Difference 40
Standard cost per set-up $ 160.00
Efficiency variance $ 6,400 Favourable

-incurred costs)
BPP Kit Question 259
Section C-Bedco -December 2013

Planning variances = The variances is cause because the planning (budget) was not appropriate.

Operational variances =The variances is caused because the actual performances was not good.

Total variances
Original budget Revised budget Actual performance
Planning variances Operational variances

(A)(I)Total material price planning & operational variances

Original budget Revised budget Actual price
$5 $6 [1.2*$5] $5.80

Planning variances =(£5-£6)*343000 Operational variances =(£6-£5.80)*343000

-343000 Adverse 68600 Favourable

Direct material total price variance =(5-5.80)*343,000 Actual quantity =248,000+95,000

-274400 Adverse 343000
Or
Total variances =-343000+68600
-274400 Adverse

(A)(ii)Total material usages planning & operational variances

Original budget Revised budget Actual usages
Bed sheets 240,000m2 240,000m2 248000m2
Pillow cases 90000 (0.5m*180000) 99000m2 (0.55m*180,000) 95000m2
330,000m2 339,000m2 343,000m2
9000 4000
£5 standard price £5 standard price
45000 20000

Planning variances =(0.5*180,000)-(0.55*180000)*£5 Operational variances =(339,000-343,000)*£5/meter

-45000 Adverse -20000 Adverse

Direct material usage total variances =(original vs actual)

=(330000-343000)*£5/metre (std price per meter)
OR -65000 Adverse
Total variances =-45000+ -20000
-65000 Adverse
Check variances: Price planning -343,000 Adverse
Price operational 68600 Favourable
Usages planning -45000 Adverse
Usages operational -20000 Adverse
Total material Cost Variances -339,400 Adverse

(B) Assess the performance of the production manager on November.

Since the production manager is not responsible for setting the standards costs,therefore they are not
responsible for the any planning variances.
They would only responsible for operational variance.

Total material cost variances £339400 adverse

The manager was not fully responsible for it.

Material price planning variances £343,000 adverse

The production manager was not responsible for it as he is not involved in the standard setting.
The planning variances was not controllable by the managers as they didn't expect there is a 20% increase
in the market price for the cotton.

Although the expected material price rose to £6 per m but they were able to purchase £5.80 per meter.

Material price operational variances £686,000 Favourable

The purchasing manager is able to get a rewards as the actual purchase price of the cotton is cheaper than
budgeted.

Material usage planning variances £45000 Adverse

The manager is not responsible for this as they were not responsible for the production shortage of 10000
pillow cases in the month as this was caused by the change in the customer requirements.

Material usage operational variances £20000 adverse

The production manager is responsible for this as they involve into the day to day operations.

The usage of material,cotton on bed sheets 248,000 m2 was more than expected 240,000m2 for
120,000 bed sheets produced. (120,000*2 m)

On the other hand,material usage of 95,000m2 was 4,000 m2 less than the expected usage of 99,000 m2
for the 180,000 pillow case's produced. (180,000units*0.55m).

In conclusion,the production manager should be asked to explain the adverse usage of material
in producing the bed sheets.
The large favourable variances for material usage on pillow case should also be explained to
ensure the pillow cases is made properly & meet the standards.

Question 261 Glove Co- Mar / June 2016

(A)The total labour rate variances.
'=(budgeted £/h—actual £/h)*actual hours
=(£14-(£531930/37000))*37000
-$13,930 Adverse

Total labour efficiency variances

=(budgeted hours—actual hours)*std£/hours
=(37800-37000)*£14/h
11200 Favourable

(B) Planning & Operational Variances

Total variances
Original budget Revised budget Actual performance
Planning variances Operational variances

(I)Total Labour rate planning variances & operational variances

Original Budget Revised budget (Increase 2%) Actual budget

£14 14.28 (£14*1.02) £14.38

Planning variances =(14-14.28)*actual h 37000 Operational variances =(£14.28-£14.38)*actual 37000

-10360 Adverse -3570 Adverse

Actual budget rate=(£531,930/37000)

Total labour rate variances = ((£531930/37000)-14)*37000 actual hours

13930 Adverse
Or
Total variances =planning variances + operational variances
=(-10360+ -3570)
-13930 Adverse

(ii) Total labour efficiency planning variances & operational variances

Original budget Revised budget Actual usage

37800 40950 (3.25h*12600) 37000
Planning variances =(37800-40950)* £14/h Operational variances =(40950-37000)*£14/h
-44100 Adverse 55300 Favourable

labour efficiency total variances = efficiency planning variances + operational variances

=-44100+55300
11200 Favourable
Or
Total variances =original vs budgeted
=(37800-37000)*standard £/hours £14/h
11200 Favourable

(iii)Controllability principal
The controllable principal means that the manager should only be responsible for the outcomes
or results which they have significant influences.

The performances measurement sysytem should clearly identify the 'controllable' and the
uncontrollable performances.

Furthermore, the controllability principle can be implemented either removing the uncontrollable
factors that the managers are not accountable/ responsible.
It could analyse the results into controllable & non-controllable elements on the performances
reports.

For example, the controllability principles means that the operational managers should only
held responsible for the operational variances.

Assess the performance of the production managers for the last quarter.
The productions managers would only be responsible for variances which is controllable.
Hence, the performances of the productions manager can be assessed using operational
variances. In this cases, the labour rate operational variances was $3570 Adverse.

This means that production managers did have to

BPP KIT Question 260
SECTION C-Valet Co-June 2014
(A)(I)Total sales mix contribution variances *change in sales mix
Actual sales v Actual sales v Standard
* actual mix *standard mix Differences Contribution/unit
Full valets 4000 5130 -1130 $ 22.30
Mini valets 3980 2850 1130 $ 16.50

7980 7980

Actual sales volume at standard mix

Budgeted Volume
Full valets 5130 =(36/56*7980) 3600
Mini valets 2850 =(20/56*7980) 2000
7980 5600

(A)(ii)Total sales quantity contribution variances * change in sales volume

Actual sales v Budgeted sales v Standard
*standard mix * standard mix Differences Contribution/unit
Full valets 5130 3600 1530 $ 22.30
Mini valets 2850 2000 850 $ 16.50

7980 5600

(B) Describe the sales mix contribution variances & sales quantity contribution variances.

The mix variances measure the impact arising from the budgeted sales mix & the actual sales mix.

The quantity variances measure the effect of the changes of sales volume on standard contribution or
profits.

(C) Explain the sales performance of the business.

The sales performance of the business has been very good over the years as this is shown by the
sales quantity contribution variances £48144 Favourable.

Overall,the actual sales revenue was higher than budgeted sales revenue by 33%. This is because
the higher number of valets is sold more than budgeted.
The number of sales of the mini valets is higher than budgeted by 99%
while the actual sales of full valets is higher than the budgeted by 11%.
Section C- BPP KIT
Question 262 THE SCHOOL UNIFORM CO-March/June 2017
(A) Material price planning & operational variances

Total variances
Original budget Revised budget Actual performance
Planning variances Operational variances

Original Budget Revised budget Actual budget

3 (£2.85/0.95*1) 2.85 2.85

Planning variances =(original vs revised)* act usage Operational = (Revised vs actual)

=(3-2.85)*54560 meter '= (2.85-2.85)*54560 meter
8184 Favourable 0

Material price total variances = Planning + operational

8184 Favourable

(A)(ii) Material usage planning & operational variances

Original Budget Revised budget Actual budget

48000 (£2.85/0.95*1) 52800 54560

Planning =(original vs revised)*std £/meter Operational =(revised vs actual)*std £/meter

'=(48000-52800)*£3/m '= (52800-54600)*£3/m
-14400 Adverse -5400 Adverse

Material efficiency total variances = planning + operational variances

=-14400+ -5400
-19800 Adverse
(B) Labour efficiency planning & operational variances

Original Budget Revised budget Actual budget

=8/60*24000units =10/60*24000 units =160*24 staff
3200 4000 3840

Planning =(original vs revised)*std £/meter Operational =(revised vs actual)*std £/meter

'=(3200-4000)*£12/hours '= (4000-3840)*£12/ hours
-9600 Adverse 1920 Adverse

Material efficiency total variances = planning + operational variances

=-9600+ 1920
-7680 Adverse

(C) Asses the performance of the production managers in the month of February.

The production managers is responsible for all purchasing & production issues.Therefore,the material
price,material usage & labour efficiency can be related to his performance.Total variances reported in
February was £19176 adverse. This indicating overspending & poor performance.However,to be
fair, managers should be responsible for operational variances that within their control.
Therefore,for performance analysis purposes,variances should be analysed into planning &
operational elements.

Planning variances are caused by planning errors.Planning errors comprise of errors of

estimations & change in environment or external factors that beyond management control.
The customer's decision to change design of school uniforms & material is a factor beyond
production managers's control.The managers need to adhere to customer's request to
sustain quality & sales revenue.The change on design of the new dress need a longer time
to make,which beyond control of the managers.

The total planning variances for the month was £15816 adverse & the managers should not be
held accountable for the amount.

Operational variances are caused by operational errors. Operational errors are caused by internal
efficiency are within the managers control.Therefore,managers can be held responsible for the
operational variances.
The actual usage of materials exceeded the revised standard usage during February.This could
be due to lack of experience in handling the material causing greater wastage than expected.

Labour
The labour efficiency was better than expected. The training provided before the commencement
of production of new dress is effective. The actual hours taken was less than revised standard
hours.The total operational variances attributed to production managers's performances is
£3360 adverse.Therefore,the performance have been poor in February.
 Variances ($)
-25199
18645

-6554
Adverse

Variances ($)
34119
14025

48144
Favourable

bution variances.

the actual sales mix.

tandard contribution or

is is shown by the

%. This is because

(119400-60k)/60k
 Actual performance

sed vs actual)
-2.85)*54560 meter

s actual)*std £/meter
4600)*£3/m
 s actual)*std £/meter
40)*£12/ hours

s.Therefore,the material
tal variances reported in
ormance.However,to be
hin their control.
sed into planning &

prise of errors of
anagement control.
l is a factor beyond
er's request to
need a longer time

managers should not be

ors are caused by internal

held responsible for the

ng February.This could
astage than expected.

d before the commencement

than revised standard
rs's performances is
BPP KIT
SECTION C
Part D- Sales Price Variances

Question 256-Truffle Co— December 2012

(A) labour rate variances = (Budgeted £/h - actual £/h)* actual hours
=(£12-£11.40)*12000
$7,200 Favourable

Labour efficiency variances. = (Budgeted usage— actual usage)* standard £/h

=(10250-12000)*£12/h
-$21,000 Adverse

(B) (I) Total labour rate planning & operational variances

Total variances
Original budget Revised budget Actual budget
Planning variances Operational variances

Original Budget Revised budget Actual budget

$12 $11.40 (£12*0.95) $11.40

D.L rate planning variances = (Original vs revised)

=(£12-£11.40)*actual hours 12000 hours
7200 Favourable

D.L rate Operational variances = (Revised vs actual)

=(£11.40-£11.40)* actual hours 12000 hours
0 Nil

(B)(ii) Total labour efficiency planning & operational variances

Original Hours Revised budget Actual hours

10250 12300 (20500units*0.6h) 12000

D.L Efficiency Planning variances = (Original vs revised)

=(10250h—12300h)* standard £/hours £12
-24600 Adverse

D.L efficiency Operational variance (Revised vs actual)

=(12300h—12000h)* standard £/h £12/h
3600 Favourable
Total labour efficiency variances = planning + operational
=-24600+3600
-21000 Adverse

Direct labour costs total variances = £13800 Adverse

D.L rate planning variances $7,200 Favourable

D.L rate operational variances $0 Nil
D.L efficiency planning variance -$24,600 adverse
D.L efficiency operational $3,600 Favourable
-$13,800 Adverse

(C) Assess the performance of the production manager for the month of November. (8 marks)
Question 256-Block Co
June 2013
(a) Total sales price variances for Commodities 3

Original Budget Revised budget Actual budget

$41.60 $39.10 Market price $40.40

Sales price planning variances (Original vs revised)

=(£41.60-£39.10)*actual volume 25600 units
$64,000 Adverse

Sales price operational variances (Revised vs actual)

=(£39.10-£40.40)* actual volume 25600 units
$33,280 Favourable

(B)(I) Total sales mix variances * change in mix

Actual sales Actual sales Differences * standard
* Actual mix * standard mix Profit/ unit
Commodity 1 29800
Commodity 2 30400
Commodity 3 25600

85800 85800

Actual quantity at standard mix

(B)(ii) Total sales yield variances

Variances (£)
Pass Year Question Kaplan Kit Question 320
Section D-Budgeting
Safe Soap Co—December 2014

(A)(I)Total material mix variances

Actual kg Actual kg Standard

* actual mix *standard mix Differences Price / kg Variances ($)
Lye 34080 33,613.33 466.67 $ 10.00 4666.7
Coconut oil 83,232 80,672.00 2,560 $ 4.00 10240
Shea butter 64,200 67,226.67 -3,027 $ 3.00 -9080.01

181512 181512 5826.69

Actual kilogram at standard mix

Budgeted kg
Lye 33613.33 =(30/162)*181,512 30000
Coconut oil 80672.00 =(72/162)*181,512 72000
Shea butter 67226.67 =(60/162)*181,512 60000
181,512 162000

(A)(ii)Total material yield variances *change in quantity

std quantity Actual quantity Standard price Variances (£)
*standard mix *standard mix Differences Per kilogram
Lye 34000 33,613.33 386.67 $ 10.00 3866.7
Coconut oil 81600 80,672.00 928.00 $ 4.00 3712
Shea butter 68000 67,226.67 773.33 $ 3.00 2319.99

183600 181,512.00 9898.69

Standard quantity at standard mix * using actual quantity

Lye 34000 Budgeted production =120,000 batches

Coconut oil 81600
Shea butter 68000 Actual production =136,000 batches
183600

(B)(I)Explain the adverse material mix & favourable material yield variances about production
at Safe Soap Co in October.

Mix variances =£6000 Adverse

Yield variances =£10,000 Favourable
Affect on demand of change in mix
Change in mix could favourable or adversely affect the sales demand because if mix changes the quality of
the product would also be expected to charge now the new quality is either liked or disliked by customer.

Customer realising the changes

It would take some time for customers to realise that the changes of the altered soap that would affect the
demand.

Customers Complaint
In this scenario,Safe Soap CO's customer have complained about the quality of the product.
This is due to the reason that they have realised the change in quality & will affecting the demand.

(C). Discuss the types of standard used in standard costing & their effect on employee motivation.

The theory of motivations suggests that a clearly defined targets is set & rewards given after acheving the
targets would increase the staff motivation.

The standard would be the metric or targets be set to measures the performances.
A basic standards is the standard that remains unchanged for several years & used to show trends over years.
It may be easy to acheive & may have negative impact on staff motivations.

The ideal standards represents the outcomes that can be acheived under perfect operating conditions, with no
wastages , inefficiency & machine breakdown. The ideal standards is a long term strategy which is not suitable
to use during day-to day operations. It may demotivate the employees as they are unlikely to acheieve.

The current standards are based on current operating conditions & incorporate current level of wastages ,
inefficiency & machines breakdown. If used as a targets, the current standards will not improve the
performances beyonds its current level . It will demotivate the employees & the targets is not challenging.

Attainable standards are the standards that can be acheived as it allows for normal levels of wastages
during the operations. It represents a cost level acheivable under reasonably efficient working operations.
The attainable standards would have a positive effect on staff motivations as the targets is challenging
but acheivable.
 Section D-Budgeting
Kappa-December 2018

(A)(I) Material usages variances for each of the ingredients.

Alpha =(budgeted usage—-actual usage)*standard £/kg

=((40kg*46)-2200kg )*£2
£720 Adverse
Adverse
Adverse Beta =(budgeted usage—actual usage)*standard £/kg
Favourable =((60kg*46)-2500kg)*£5
1300 Favourable
Adverse
Gamma =(budgeted usage—actual usage)*standard £/kg
=((20kg*46)-920 kg)*£1
0

Total materials usage variances =-720+1300

£580 Favourable

(A)(ii) Total material mix variances * change in mix

Actual kg Actual kg
* actual mix *standard mix Differences
Alpha 2200 1873.33 -326.67
Beta 2500 2810 310
Gamma 920 936.67 16.67
Favourable
5620 5620

Actual kg at standard mix

Alpha =5620* 40/120 1873.333333
Beta =5620*60/120 2810
Gamma =5620*20/120 936.6666667
5620

(A)(iii)Total material yield variances * change in quantity

Std quantity Actual quantity Differences
* standard mix * standard mix
Alpha 1840 1873.33 -33.33
Beta 2760 2810 -50
Gamma 920 936.67 -16.67
nges the quality of 5520 5620
ked by customer.
Standard quantity at standard mix
Alpha 1840 =40*46 Actual production =4600 kg of O
t would affect the Beta 2760 =60*46
Gamma 920 =20*46
5520

****Alternative method for the total material yield variances ****

Actual output 4683

Standard output 4600

Differences 83
Standard material cost / unit 4

Total yield variances 332

ven after acheving the

(b) Problem with the current system of calculating & reporting the variances for ac
performance of production managers.
how trends over years.
^^Firstly, the material price variances in the operating statement of Kappa is beyo
production managers as the procurement of raw material will fall under the respon
ng conditions, with no purchasing managers.
y which is not suitable
ly to acheieve. Besides that,the production managers has no participation in setting the material s
The production staff & managers will be demotivated of achieving the standards as
level of wastages , have the sense of ownership of it.
mprove the
s not challenging. Furthermore,the standard mix is set by the financial department 5 years ago and n
since then. Well,the original standard must be revised regularly.
evels of wastages
orking operations.
is challenging **The Kappa doesn't provide the feedback on the efficiency of the Omega process.
This doesn't show the true performance of the production managers.

This is illustrated by the total material usage variances £580 favourable, so this pro
manager would assume good performance. However,the material usage can
further into material mix & yield variances.

The change of the standards mix of material will affect the material mix variances &
variances.This is illustrated by the savings of £913 favourable of material mix & sig
low yield variances of £333 adverse.

Furthermore,the changes of the mix may also affect the product's quality & the sale
product.
ingredients.

Standard
Price / kg Variances ($)
$2 -$653 Adverse
$5 $1,550 Favourable
$1 $17 Favourable

$913 Favourable

Standard mix
40
60
20
120

nge in quantity
standard
price / kg Variances
$2 -$67 Adverse
$5 -$250 Adverse
$1 -$17 Adverse
 -$333 Adverse

al production =4600 kg of Omega

eld variances ****

eporting the variances for accessing the

statement of Kappa is beyond the control of the

ial will fall under the responsibility of the

tion in setting the material standard mix.

of achieving the standards as they don't

epartment 5 years ago and not updated

vised regularly.

ency of the Omega process.

ion managers.

£580 favourable, so this production

ever,the material usage can be analysed

the material mix variances & yield

ourable of material mix & significant

e product's quality & the sales of the