Millennium Models Ltd manufactured an ornamental gift for the tourist trade. The standard variable cost per unit is:

Question

Materials	£0.85 per kg
Unit material usage	2 kg
Direct labour rate	£4.20 per hour
Standard labour per unit	42 minutes
Selling price per unit	£5.84

Fixed overhead is recovered on the basis of units produced at the rate of £0.82 per unit and Millennium Models planned to sell 4,300 units in November 2010.
In November 2010 Millennium Model’s actual performance was:

Units manufactured and sold	4,100
Sales revenue	£24,805
Materials used	6,600 kg at £0.83 per kg
	1,900 kg at £0.89 per kg
Direct labour paid	2,975 at £4.50 per hour
Overheads incurred	£3,800

You are required to:
(i) prepare an actual to budget profit reconciliation for November 2010 including an
analysis of sales, materials and labour variances
(ii) calculate the fixed overhead expenditure and fixed overhead volume variances for
November 2010.

Accepted Answer

	Budget	Flexed	Actual		Variances
Units	4,300	4,100	4,100
	£	£	£		£
Sales	25,112	23,944	24,805	price
	4,300 × £5.84	4,100 × £5.84	4,100 × £6.05	4,100 × (£5.84 − £6.05)	861F
Materials	7,310	6,970	7,169	price
	4,300 × 2 × £0.85	4,100 × 2 × £0.85	(6,600 × £0.83) +(1,900 × £0.89)	8,500 × (£0.8434 − £0.85)	56F
				usage
				£0.85 × (8,500 − 8,200)	255A
Labour	12,642	12,054	13,387.50	rate
	4,300 × 0.7 × £4.20	4,100 × 0.7 × £4.20	2,975 × £4.50	2,975 × (£4.50 − £4.20)	892.50A
				efficiency
				£4.20 × (2,870 − 2,975)	441A
Contribution	5,160	4,920	4,248.50
Fixed	3,526	3,526	3,800	spend
overhead	4,300 × £0.82			£3,526 − £3,800	274A
Profit	1,634	1,394	448.5
Profit per unit	£0.38
	£1,634/4,300
Volume
variance				sales
	1,634 1,394 budget profit − flexed budget =[latex]\left\{ \begin{matrix} £0.38 × (4,100 − 4,300) \ fixed overhead \ £0.82 × (4,100 − 4,300) \end{matrix} ight.[/latex]				76A
					164A
Total variances					1,185.50A

	£	£
Budget profit		1,634
Sales variances
Price	861F
Volume	[latex]\underline{76A} [/latex]	785F
Materials variances
Price	56F
Usage	[latex]\underline{255A} [/latex]
Labour variances
Rate	892.50A
Efficiency	[latex]\underline{} [/latex]441A	1,333.50A
Fixed overhead variances
Spend	274A
Volume	[latex]\underline{164A} [/latex]	[latex]\underline{438A} [/latex]
Actual profit		[latex]\underline{448.50} [/latex]

Question 13.5: Millennium Models Ltd manufactured an ornamental gift for th...

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