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Introduction

This report shows the variances of direct material total, usage, price, direct labor total, rate, efficiency, and total overhead by a table and of flexed budget. And also give the recommendation and conclusion.

Flex budget

Tricol Plc Flexed Budget For June 2008 Direct materials Direct Labor Variable overheads Insurance Depreciation Rent and Rates Administration Total Original Budget 2,000 units ￡ 80,000 36,000 4,000 2,200 1,500 2,500 2,000 128,200 Flexed Budget 1,600 units ￡ 64,000 28,800 3,200 2,200 1,500 2,500 2,000 104,200 Actual Results 1,600 units ￡ 61,600 35,200 3,200 2,400 1,500 2,500 2,200 108,600 Variance F/A ￡ 2,400 6,400 0 200 0 0 200 4,400 F A A A A Variances analysis

The direct material usage variance is 8000(F), it shows that the flexed budget is￡8,000 more than the actual cost, as a result of the using of higher-grade materials and changing of the way of production.

The direct material price variance is 5600(A), which means that the actual price is￡5600 more than the flexed budget price, because of the Tricol PLC had changed their supplier and purchase the higher-grade material lead to the price raised from ￡10 per/kg to￡11 per/kg.

The direct material total = direct material usage – direct material price.

As calculated above, 8000-5600=2400, the direct material total variance is￡2400.

The direct labor rate variance is 3520(A), which means that the actual labor rate is￡3520 more than the flexed budget, caused by the company supplied a higher-than-expected wage, the labor cost raised from￡9 per hour to￡10 per hour, and may because Some employees still apprentices, with poor efficiency.

The direct labor efficiency variance is 2880(A), as to say, the actual labor efficiency is￡2880 more than flexed budget efficiency. It may be because the machine on the production line equipment getting old and it influence the efficiency of employees at the time of production, or maybe the culture of the company is not so well at current time, which result in reduced efficiency.

The direct labor total variance is 6400(A) caused by the labor rate variance and efficiency variance. It shows that the actual total labor is ￡6400 more than the flexed budget total labor.

The total overhead variance is 400(A) that means the actual total overhead is ￡400 more than flexed budget, which caused by the changing of administration overhead and insurance cost both. These two things may change by the company change the salary of the management, and they may add extra insurances for the employees or the machinery.

Conclusion

There is a policy of the company in which the company applies a rate of significance of 3% for any Variance analysis. According to the data above, we can clearly see that all the actual variances are higher than 3%, it may caused by the actual production for June was 80% of the target amount, and there are some respects had been changed in the factory.

Recommendation

I’d give some advices to Tricol Plc for improving their business. ? To improve the efficiency not only by increase the salary but also change the way of production.

? The company may discuss with the new supplier to lower raw material prices.

? Training a group of experienced staff.

Appendix

1. Direct material total variance

(Standard units of actual production *standard price) - (actual quantity* actual price)

10*4*1600- 61600=2,400(F) 2400/64000=3.75% 2. Direct material usage variance

Standard price*(standard units of actual production –actual units) 10*(4*1600-5600) =8,000(F) 8000/64000=12.5% 3. Direct material price variance

Actual quantity *(standard price –actual price) 5600*(10-11) =5,600(A) 5600/64000=8.75% 4. Direct labor total variance

(Standard hours of actual production*standard rate ph) – (actual hours*actual rate ph)

2*1600*9-35,200=6400(A) 6400/28800=22.22% 5. Direct labor efficiency variance

Standard rate ph*(standard hours of actual production- actual hours) 9*(1,600*2-3,520) =2880(A) 2880/28800=10% 6. Direct labor rate variance

Actual hours*(standard rate ph-actual rate ph) 3520*(9-10) =3,520(A) 3520/28800= 12.22% 7. Total overhead variance

Total standard overhead for actual production- total actual overheads (1600*2-3,200) - (8,200-8,600) =400(A) 400/ (3200+8200) =3.51 %