Page 434 - PM Integrated Workbook 2018-19
P. 434

Chapter 15










                   Example 6



                   A furniture company manufactures high quality dining room furniture that is
                   sold to major retail stores.

                   Extracts from the budget for last year are given below:

                                                        Tables         Chairs       Sideboards

                   Sales quantity (units)                 8,000        26,000           6,000
                   Average selling price                 $2,200          $320          $2,800

                   Direct material cost per unit         $1,000          $160          $1,200
                   Direct labour cost per unit             $400           $60            $600

                   Variable overhead cost per unit          $40             $6            $60

                   The budgeted direct labour cost per hour was $20.

                   Actual results for last year were as follows:

                                                        Tables         Chairs       Sideboards

                   Sales quantity (units)                 7,200        31,000           7,800
                   Average selling price                 $2,400          $310          $2,500

                   Direct material cost per unit         $1,100          $150          $1,300
                   Direct labour cost per unit             $450           $60            $600

                   Variable overhead cost per unit          $60             $8            $80

                   The actual direct labour cost per hour was $18.75. Actual variable overhead
                   cost per direct labour hour was $2.50. The company operates a just-in-time
                   system for purchasing and production and does not hold any inventory.

                   Calculate the sales mix contribution variance and the sales quantity
                   contribution variance, and explain the meaning of the variances
                   calculated.














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