Grainger Ltd makes sofa covers which are sold directly to the public via the company’s website. The business has expanded over the last couple of years and has recently appointed you as management accountant to replace Mark Arthurs, the retiring office manager. To help you on your arrival, Mark Arthurs has supplied the following standard costing data, based on observations and financial records.
Quantity of resource
Cost per unit of resource (£)
Standard cost per unit (£)
Direct materials
14 m2 (square metres)
20
280
Direct Labour
10 hours
11.50
115
Total
395
Planned output for October (your first month in the post) had been 2,300 units, however, due to the current trend for refurbishing existing furniture rather than replacing it, the actual output in the month was 2,622 units. The month had, however, been challenging, with staff shortages being plugged using agency staff and fabric is difficult to source due to supply chain issues.
The report of actual costs incurred in October is as follows:
Quantity of resource
Total Cost (£)
Direct materials
38,019 m2 (square metres)
798,399
Direct Labour
31,464 hours
373,635
Total
1,172,034
In a meeting to discuss cost control in the period, Stuart Brown, the production manager, made the following statement: "in preparing for this meeting I’ve done some calculations: output was 14% higher than planned but our cost per unit was only 13.2% higher than standard: what a fantastic job the team’s done in controlling our costs!"
Required:
Calculate the total direct materials variance and total direct labour variance, together with their respective sub-variances.
(21 marks)
Show how Stuart derived the percentages quoted in his statement and consider its validity. Discuss whether or not you agree that costs have been well controlled in the period.
(4 marks)