a) & b)

Budget
Output (units) (prodn and sales)
Sales revenue
Raw materials
Labour
Fixed overheads
Operating profit

Original
4,000
RM
16,000
(3840)
(3,200)
(4,800)
4,160

Sales volume variance (4,160 3,040)

Sales price variance (14,000 13,820
Materials price variance (1,425 2.40) 3,420
Materials usage variance [(3,500 0.4) 1,425] RM2.40
Labour rate variance (345 RM8) 2,690
Labour efficiency variance [(3,500 0.10) 345] RM8
Fixed overhead spending variance (4,800 4,900)

(1,120)
(180)
0
(60)
70
40
(100)

Total net variances

Budgeted profit
Total net variance
Actual profit

(1,350)
4,160
(1,350)
2,810

(c) Feasible explanations include the following:

Sales volume unanticipated fall in world demand would account for 400 RM2.24
= RM896 of this variance (RM2.24 is the budgeted contribution per unit). Ineffective
marketing probably caused the remainder, though a lack of availability of the
finished product to sell may be a reason.
Sales price ineffective selling seems the only logical reason.
Materials usage inefficient usage of materials, perhaps because of poor performance
by labour or substandard materials.
Labour rate less overtime worked or lower production bonuses paid as a result of
lower volume of activity.
Labour efficiency more effective working.

 Overheads ineffective control of overheads.

(d) Clearly, not all of the sales volume variance can be attributed to poor marketing, given
a 10% reduction in demand.
It will probably be useful to distinguish between that part of the variance that arose
from the shortfall in general demand (a planning variance) and a volume variance,
which is more fairly attributable to the manager concerned. Thus accountability will be
more fairly imposed.

Flexed
3,500
RM
14,000
(3,360) (1,400kg)
(2,800) (350 hr)
(4,800)
3,040

erformance

Actual
3,500
RM
13,820
(3,420) (1,425kg)
(2,690) (345 hr)
(4,900)
2,810

RM

Manager
accountable
(A)
(A)
(A)
(F)
(F)
(A)

(A)

Sales
Sales
Production
Personnel
Production
Various
depending on
the nature of
the overhead

keting, given

ity will be