John Cush is a producer of knitted cricket jumpers. His most popular selling line is called the 'Billy Jean’ and due to England's recent cricket success he has benefitted from an increase in sales in this product. After a successful year in terms of sales he has been informed by his accountant that he has made a loss. He has asked the accountant to investigate the variances as a matter of urgency. The budget for the previous year was as follows: Selling price per jumper - £70Material to produce one jumper – 3 metres of wool at £7 per metre. Labour to produce one jumper – 2 hours at £15 per hourVariable overheads - £3 per direct labour hour.Fixed overheads budget was £15,000The budget was to produce and sell 2,000 jumpers in the year. The actual information for the year is as follows: Production of jumpers totalled 3,000 units and all were sold for £216,000. Purchases of wool totalled 10,500 metres costing £84,000.A total of 7,500 hours of labour was worked, costing £112,500.Variable overheads totalled £30,000 and fixed overheads were £20,000.  Produce a statement showing the differences in the profit/Loss of the original budget, flexed budget and the actual results Calculate the direct materials, direct labour, variable overheads, fixed overheads and sales variances using the information provided. Produce a report to John Cush explaining reasons for the variances you have calculated.  Identify and explain Three significant factors that you need to consider when investigating variances as per the results in part (b)

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
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Chapter3: Cost Behavior
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Problem 40P: The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is...
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John Cush is a producer of knitted cricket jumpers. His most popular selling line is called the 'Billy Jean’ and due to England's recent cricket success he has benefitted from an increase in sales in this product. After a successful year in terms of sales he has been informed by his accountant that he has made a loss. He has asked the accountant to investigate the variances as a matter of urgency.

The budget for the previous year was as follows:

Selling price per jumper - £70
Material to produce one jumper – 3 metres of wool at £7 per metre. Labour to produce one jumper – 2 hours at £15 per hour
Variable overheads - £3 per direct labour hour.
Fixed overheads budget was £15,000
The budget was to produce and sell 2,000 jumpers in the year.

The actual information for the year is as follows:

Production of jumpers totalled 3,000 units and all were sold for £216,000. Purchases of wool totalled 10,500 metres costing £84,000.
A total of 7,500 hours of labour was worked, costing £112,500.
Variable overheads totalled £30,000 and fixed overheads were £20,000.

  1.  Produce a statement showing the differences in the profit/Loss of the original budget, flexed budget and the actual results

  2. Calculate the direct materials, direct labour, variable overheads, fixed overheads and sales variances using the information provided.

  3. Produce a report to John Cush explaining reasons for the variances you have calculated.

  4.  Identify and explain Three significant factors that you need to consider when investigating variances as per the results in part (b)

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