Question

Chaffour Co is one of the world largest brown rice producers. It processes and sells brown rice. It buys unprocessed rice seeds and then, using a relatively simple process, removes the outer husk of the rice to produce the brown rice. This means that there is substantial loss of weight in the process. The market for the purchase of seeds and the sales of brown rice has been, and is expected to be, stable.

Chaffour Co uses a variance analysis system to monitor its performance on a monthly basis.

In month of June 2013, the following data applies: Standard costs for 1 ton of brown rice

•  1.4 tons of rice seeds are needed at a cost of $60 per ton

•  It takes 2 labor hours of work to produce 1 ton of brown rice and labor is

  normally paid $18 per hour.

•  2 hours of variable overhead at a cost of $30 per hour

•  The standard selling price is $240 per ton

•  The standard contribution per ton is $56 per ton

  Budget information is as follows:

•  Fixed costs were budgeted at $210,000 for the month

•  Budgeted production and sales were 8,400 tons

  The actual results for the month of June 2013 were as follows: Actual production and sales were 8,000 tons

•  12,000 tons of rice seeds were bought and used, costing $660,000

•  15,800 labor hours were worked and paid for, costing $303,360

•  Variable production overhead cost $480,000

•  Fixed costs were $200,000

•  Sales revenue achieved was $1,800,000 Required:

  a) Calculate the following variances for the month of June 2013:

  (i) Salespricevariance

  (ii) Sales volume variance (iii) Material price variance (iv) Material usage variance (v) Laborratevariance
  (vi) Labor efficiency variance

  b) (i) Explain the meaning of variance.
  (ii) Briefly identify and explain the causes of the variances in a).

Answer 1

Solution:

Part a(i) – Sales Price Variance

Sales Price Variance
Actual Sale Price (Sales Revenue $1,800,000 / Units Sold 8,000)	$225.00	per ton
Standard Sale Price	$240.00	per ton
Variance or Difference in Price	$15.00	per ton
x Actual Quantity SOLD	8000	tons
Sales Price Variance	$120,000	Unfavorable

Part a(ii) – Sales Volume Variance

Sales Volume Variance
Standard Sales Units	8400	Tons
Actual Quantity Sold	8000	Tons
Variance or Difference in Quantity	400	Tons
x Standard Sale Price (SP)	$240.00	per ton
Sales Volume Variance	$96,000	Unfavorable

Part a(iii) Material Price Variance

Material Price Variance
Actual Price ($660,000 / 12,000 tons purchased)	$55.00	per ton
Standard Price	$60.00	per ton
Variance or Difference in Price	$5.00	per ton
x Actual Quantity PURCHASED/USED	12,000	tons
Material Price Variance	$60,000	Favorable

Part a(iv) Material Volume Variance

Direct Material Quantity/Efficiency/Usage Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity	8000	Tons
x Allowed Standard Quantity Per Unit	1.40	tons
Total Standard Quantity Allowed for actual production	11,200	tons
Actual Quantity USED	12,000	tons
Variance or Difference in Quantity	800	tons
x Standard Price	$60.00	per ton
Material Quantity/Efficiency Variance	$48,000	Unfavorable

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for other parts problems