Independent Learning
Week 9 – Master Budget
Solution
Exercise 1 – Static-budget and Flexi-budget
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Exercise 2 – Direct cost variances
a.
Compute the direct materials price and efficiency variances for the quarter.
Direct material price variance
= (SP X AQ) – (AP X AQ)
= AQ (SP – AP)
= ($5.00 x 14,000sq yards) – ($4.90 x 14,000sq yards)
= 14,000sq yards ($5.00 – $4.90*)
= $1,400 F
*AR = $68,600/14,000sq yard = $4.90 per sq yard
Direct material efficiency variance
= (SP X SQ) – (AQ X SP)
= SP (SQ – AQ)
=($5.00 x 15,000sq yards) – ($5.00 x 14,000sq yards)
= $5.00 (15,000sq yards – 14,000sq yards)
= $5,000 F
*SQ = 10sq yards x 1,500 units = 15,000sq yards
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b.
Compute the direct labour price and efficiency variances for the quarter.
Direct labour price variance
= (SR X AH) – (AR X AH)
= AH (SR – AR)
= ($10.00 x 7,600 hours) – ($10.50 x 7,600hours)
= 7,600hours ($10.00 – $10.50)
= $3,800 U
*AR = $79,800/7,600h = $10.50 per hour
Direct labour efficiency variance
= (SR X AH) - (SR X SH)
= SR (AH – SH)
= ($10.00 x 7,600hours) – ($10.00 x 7,500hours)
= $10.00 (7,600hours – 7,500hours)
= $1,000 U
*SH = 5hours per unit x 1,500 units = 7,500hours
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