Untitled Document

Solution 11.5

a) Prepare a statement showing, for expenses only, fixed and flexible budgets, actual expenses, and variances, for the month

		Budgeted and Actual Expenses
		Fixed Budget	Flexible Budget	Actual	Variances
	Per Visitor	120,000	115,000	115,000
	€	€	€	€	€
Variable Expenses
Food costs	4.20	504,000	483,000	528,000	-45,000	A
Direct labour	4.40	528,000	506,000	493,500	12,500	F
Variable o/h	1.40	168,000	161,000	178,600	-17,600	A
	10.00	1,200,000	1,150,000	1,200,100	-50,000	F
Fixed overheads		150,000	150,000	144,300	5,700	F
Total expenses		1,350,000	1,300,000	1,344,400	-44,400	A

Note the figures that make up each variance is marked in bold

The variances are as follows

Food cost variance 45,000 A

Direct labour variance 12,500 F

Variable overhead variance 17,600 A

Variable costs volume variance 50,000 F

Fixed overhead variance 5,700 F

b) Calculate all relevant expense variances

	Materials cost variances
Materials price variance		Standard price		-	Actual price	x	Actual Quantity
		(2.80		-	3.20)	x	165,000	-66,000	A

Materials usage variance		Standard Quantity		-	Actual quantity	x	Standard price
		(172,500		-	165,000)	x	2.80	21,000	F
Materials cost variance								-45,000	A


Labour cost Variances
Labour rate variance		Standard rate		-	Actual rate	x	Actual Hours
		(11.00		-	10.50)	x	47,000	23,500	F

Labour efficiency variance		Standard hours		-	Actual hours	x	Standard rate
		46,000		-	47,000	x	11.00	-11,000	A
Labour cost variance								12,500	F


	Variable overhead variances
Variable overhead rate variance			Standard rate	-	Actual rate	x	Actual Hrs
			(3.50	-	3.80)	x	47,000	-14,100	A

Variable overhead efficiency variance			Standard hours	-	Actual hours	x	Standard rate
			(46,000	-	47,000)	x	3.50	-3,500	A
Variable overhead cost variance								-17,600	A

c) Prepare a statement reconciling budgeted and actual expenses

	Reconciliation of Budgeted with Actual Expenses
			€	€	€
			(F)	A
Original budgeted expenses		(120,000 visitors)			1,350,000

Variable cost volume variance		(-5,000 visitors)			-50,000	F
Flexible budget expenses		(115,000 visitors)			1,300,000

Food price variance				66,000
Food usage variance			-21,000
Labour rate variance			-23,500
Labour efficiency variance				11,000
Variable overhead expend variance				14,100
Variable overhead efficiency variance				3,500
Fixed overhead expend variance			-5,700

			-50,200	94,600	44,400	A
Actual Expenses		(115,000 visitors)			1,344,400

d) Give possible reasons for the variances

Variable cost volume variance (F)

The business selling less and thus variable costs fall

Food price (A)

Higher inflation, higher quality, less bulk discounts, Cost standards not revised regularly

Food usage (F)

Less waste, higher quality materials,

Labour rate (F)

Softening labour market, lower grade, lower overtime premiums, cost standard not revised regulartly

Labour efficiency (A)

Lower calibre staff, lack of training, less motivation/supervision

Variable o/h rate (A)

More time worked, inflation in service costs (e.g. electricity)

Variable o/h efficiency (A)

Same as for labour, less efficient use of service.

Fixed o/h expend (F)

Lower inflation, lower quality service, lower fixed salaries