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    Grinton VAsolution NS

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    Fi

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    Grinton VAsolution NS

    Uploaded by

    Fi
    4 views10 pages

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    GrintonVAsolutionNS

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    4 views10 pages

    Grinton VAsolution NS

    Uploaded by

    Fi

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 10

    Variance Analysis: Grinton Ltd

    by Anne Hall
    An illustration: Grinton Ltd

    Grinton Ltd has established a standard direct cost per unit of £36,
    comprising:
    direct materials of £21 (being 7kg of material @ standard cost of £3 per kg)
    and
    direct labour of £15 (being 1.5 hours @ standard rate per hour of £10)

    Fixed overheads of £40,000 are expected.


    Whilst 1,200 units had been planned for the period just ended, in actual fact
    1,100 units were produced and the following control report was compiled.

    2
    Control report
    Flexed Flexed Actual Variance
    Budget Budget
    workings
    Output (units) 1,100 1,100

    Direct materials (£) 1,100 x £21 23,100 23,606 £506A

    Direct labour (£) 1,100 x £15 16,500 16,632 £132A

    Fixed overheads (£) 40,000 39,500 £500F

    Totals (£) 79,600 79,738 £138A


    Getting to the bottom of the £638 overspend on direct costs

    4
    Further analysis of direct costs

    Actual expenditure comprised:


    £23,606 on 8,140 kg of materials
    £16,632 on 1,540 labour hours
    £40,238

    5
    Materials variances
    materials total

    actual cost – std cost of actual production

    23,606 - (£21 x 1,100) = 506A

    materials usage

    (actual quantity used – std quantity for actual output) @ std cost per kg

    8,140 - (7 x 1,100) = 440 x £3 = 1,320A

    materials price

    actual cost – std cost of actual purchases

    23,606 - (8,140 x £3) = 814F Or 10p saving x 8,140kg bought = 814F


    6
    Labour variances
    labour total

    actual cost – std cost of actual production

    16,632 - (£15 x 1,100) = 132A

    labour efficiency

    (actual hours worked – std hours for actual output) @ std rate per hour

    1,540 - (1.5 x 1,100) = 110 x £10= 1,100F

    labour rate

    actual cost – std cost of actual hours paid

    16,632 - (£10 x 1,540) = 1,232A Or 80p extra x 1,540 hours paid = 1,232A
    Direct Cost Reconciliation Statement

    Standard direct cost of actual production (£36 x 1,100) 39,600


    sub-variances F A
    materials price 814
    materials usage 1,320
    labour rate 1,232
    labour efficiency 1,100
    adverse totals 2,552 +2,552
    favourable totals 1,914 -1,914
    Actual direct cost of production (£23,606 + £16,632) 40,238

    8
    What are your thoughts on the sub-variances identified?

    This Photo by Unknown Author is licensed under CC BY-SA-NC

    9
    Matters arising

    Why was production 100 units short of plan?

    Excess materials usage


    Lower purchase price

    Labour time savings


    Higher wage rate

    10

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