QUESTION 4 20 MARKS Namtech Ltd is an electronics company wh

QUESTION 4 20 MARKS Namtech Ltd, is an electronics company which makes two types of televisions- plasma screen TV and LCD TV. It operates within a highly competitive market and is constantly under pressure to reduce prices. Namtech Ltd operates a standard costing system and performs a detailed analysis of both products on a monthly basis. Extracts from the management information for the month of November are as follows; Total number of units made and Material Price Variance NS 28 000 (Unfavourable) NS 6 050 (Unfavourable) 2 3 1. The budgeted total sales volume for the TVs was 1180 units, consisting of an equal mix of plasma screen TVs and LCD screen TVs. The actual sale volume was 750 plasma TVs and 650 LCD TVs. Standard sales prices are NS 350.00 per unit for the plasma TVs and NS 300.00 for the LCD TVs. The actual sales prices achieved during November were NS 330.00 per unit of plasma TVs and NS 290 per unit for the LCD TVs. The standard contribution for plasma TVs and LCD TVs are NS 190.00 and NS 180.00 respectively 2. The reason for this variance was an increase in the purchase price of its key components Gammer. Each plasma TV and each LCD TV made requires one unit of component Gammer for which Namtech Ltd standard cost is NS 60.00 per unit. Due to a shortage of components in the market, the market price for November went up to NS 85.00 per unit of Gammer Namtech actually paid N$80.00 per unit for it 3. Each Plasma TV uses two standard hours of labour and each LCD TV uses one and a half standard hour of labour. The standard cost for the labour is N$ 14.00 per hour and this also reflects the actual cost per labour for the company permanent staff in November. However because of the increase in the sales and production volumes in November, the company also had to use additional temporary labour at a higher cost of NS 18.00 per hour. The total capacity of Namtech Ltd permanent workforce is 2 200 hours production per month, assuming full efficiency. In the month of November, the permanent workforce were wholly efficient, taking exactly two hours to complete each plasma TV and exactly one and a half hour to produce each LCD TV. The total labour variance therefore relates solely to the temporary workers, who took twice as long as the permanent workers to complete their REQUIRED 4.1 Calculate the Sales Price Variance 4.2 Calculate the Sale Volume Contribution Variance 4.3 Calculate the Material Price Planning Variance 4.4 Calculate the Material Price Operational Variance 4.5 Calculate the labour Rate Variance 4.6 Calculate the Labour Efficiency Variance 4.7 Explain any three reasons why the company will be interested in computing the variances in 3.3 and 3.4

Solution

4.1) Budgeted Total sales volume (given) = 1180 units (Consisting of an equal mix of Plasma tv and LCD tv i.e. 590 units)

Working Note -

Particulars Plasma TV LCD TV Both

Budgeted Quantity 590 units 590 units --

Actual Quantity 750 units 650 units --

Standard Selling Price (per unit ) N$ 350 N$ 300 --

Actual Selling Price (per unit) N$ 330 N$ 290 --

Standard Contribution Margin N$ 190 N$ 180 --

Actual Material Price -- -- N$ 80

Standard Material Price -- -- N$ 60

Revised Material Price -- -- N$ 85

Sales Price Variance (SPV) = Actual Sales - Actual Sales at Budgeted Price

= Actual sales units X Actual Price (AP) - Actual sales units X Budgeted price (BP)

= (AP- BP) X Actual sales units

SPV (Plasma) = (330 -350) X 750 = 15,000 (A)

SPV (LCD) = (290-300) X 650 = 6,500 (A)

Sales Price Variance = SPV (Plasma) + SPV (LCD)

= 15,000 (A) + 6500 (A)

= 21,500 (A)

4.2) Sales Volume Contribution Variance (SVCV) = (Actual units sold - Budgeted units ) X Standard contribution margin

SVCV (Plasma) = ( 750- 590) X N$ 190 = N$ 30,400 (F)

SVCV (LCD) = ( 650- 590) X N$ 190 = N$ 10,800 (F)

Sales Volume Contribution Variance = SVCV(Plasma ) + SVCV (LCD)

= N$ 30,400 (F) + N$ 10,800 (F)

= N$ 41,200 (F)

4.3) The key component for making both plasma and LCD tv is Gammer. The variances occurred due to the shortage of the key component.

Material Price Planning Variance (MPPV) = Actual Usage at revised cost - Actual Usage at Original Standard Cost

= 1400 units X N$ 85 - 1400 units X N$ 60

= N$ 35,000 (A)

4.4) Material Price Operational Variance (MPOV) = Actual usage at actual cost - Actual usage at revised cost

= 1400 units X N$80 - 1400 units X N$ 85

= N$ 7000 (F)