1. **Problem Statement:** Calculate various cost and sales variances for Tikiri Limited for July 2024 based on given standard costs, budgeted output, and actual results. 2. **Given Data:** - Standard cost per unit: - Direct materials: 0.5 kg at Rs.4.00/kg = Rs.2.00 - Direct labour: 2 hours at Rs.2.00/hour = Rs.4.00 - Variable overheads: 2 hours at Rs.0.30/hour = Rs.0.60 - Fixed overheads: 2 hours at Rs.3.70/hour = Rs.7.40 - Budgeted output: 5,100 units - Actual results: - Units sold: 4,850 units for Rs.95,600 - Materials used: 2,300 kg costing Rs.9,800 - Labour hours worked: 8,000 hours - Labour hours paid: 8,500 hours costing Rs.16,800 - Variable overheads: Rs.42,300 - Fixed overheads: Rs.2,600 --- ### i. Variance Calculations **a. Direct Material Cost Variance (DMCV) and Usage Variance (DMUV):** - Standard quantity for actual output = $4,850 \times 0.5 = 2,425$ kg - Standard cost per kg = Rs.4.00 - Actual quantity used = 2,300 kg - Actual cost = Rs.9,800 \[\text{DMCV} = (\text{Standard price} - \text{Actual price}) \times \text{Actual quantity} = (4.00 - \frac{9,800}{2,300}) \times 2,300 = (4.00 - 4.26) \times 2,300 = -0.26 \times 2,300 = -598 \text{ (Adverse)}\] \[\text{DMUV} = (\text{Standard quantity} - \text{Actual quantity}) \times \text{Standard price} = (2,425 - 2,300) \times 4.00 = 125 \times 4.00 = 500 \text{ (Favourable)}\] **b. Direct Labour Rate Variance (DLRV) and Efficiency Variance (DLEV):** - Standard hours for actual output = $4,850 \times 2 = 9,700$ hours - Actual hours paid = 8,500 hours - Actual labour cost = Rs.16,800 - Standard rate = Rs.2.00/hour \[\text{DLRV} = (\text{Standard rate} - \text{Actual rate}) \times \text{Actual hours paid} = (2.00 - \frac{16,800}{8,500}) \times 8,500 = (2.00 - 1.976) \times 8,500 = 0.024 \times 8,500 = 204 \text{ (Favourable)}\] \[\text{DLEV} = (\text{Standard hours} - \text{Actual hours worked}) \times \text{Standard rate} = (9,700 - 8,000) \times 2.00 = 1,700 \times 2.00 = 3,400 \text{ (Favourable)}\] **c. Variable Overhead Expenditure Variance (VOHEV) and Efficiency Variance (VOHEFV):** - Standard variable overhead rate = Rs.0.30/hour - Actual variable overhead = Rs.42,300 - Actual hours worked = 8,000 hours - Standard hours for actual output = 9,700 hours \[\text{VOHEV} = \text{Standard rate} \times \text{Actual hours} - \text{Actual overhead} = 0.30 \times 8,000 - 42,300 = 2,400 - 42,300 = -39,900 \text{ (Adverse)}\] \[\text{VOHEFV} = (\text{Standard hours} - \text{Actual hours}) \times \text{Standard rate} = (9,700 - 8,000) \times 0.30 = 1,700 \times 0.30 = 510 \text{ (Favourable)}\] **d. Fixed Overhead Expenditure Variance (FOHEV) and Efficiency Variance (FOHEFV):** - Standard fixed overhead rate = Rs.3.70/hour - Actual fixed overhead = Rs.2,600 - Actual hours worked = 8,000 hours - Standard hours for actual output = 9,700 hours \[\text{FOHEV} = \text{Standard fixed overhead} - \text{Actual fixed overhead} = 3.70 \times 9,700 - 2,600 = 35,890 - 2,600 = 33,290 \text{ (Favourable)}\] \[\text{FOHEFV} = (\text{Standard hours} - \text{Actual hours}) \times \text{Fixed overhead rate} = (9,700 - 8,000) \times 3.70 = 1,700 \times 3.70 = 6,290 \text{ (Favourable)}\] **e. Sales Price Variance (SPV) and Sales Volume Variance (SVV):** - Budgeted selling price = Rs.20.00 - Actual sales revenue = Rs.95,600 - Actual units sold = 4,850 - Budgeted units = 5,100 \[\text{SPV} = (\text{Actual price} - \text{Budgeted price}) \times \text{Actual units sold} = \left(\frac{95,600}{4,850} - 20.00\right) \times 4,850 = (19.69 - 20.00) \times 4,850 = -0.31 \times 4,850 = -1,503.5 \text{ (Adverse)}\] \[\text{SVV} = (\text{Actual units sold} - \text{Budgeted units}) \times \text{Budgeted price} = (4,850 - 5,100) \times 20.00 = -250 \times 20.00 = -5,000 \text{ (Adverse)}\] --- ### ii. Summary of Total Cost and Sales Variances - Total cost variances = DMCV + DMUV + DLRV + DLEV + VOHEV + VOHEFV + FOHEV + FOHEFV \[= (-598) + 500 + 204 + 3,400 + (-39,900) + 510 + 33,290 + 6,290 = 3,696 \text{ (Favourable)}\] - Total sales variances = SPV + SVV = (-1,503.5) + (-5,000) = -6,503.5 \text{ (Adverse)} --- ### iii. Causes and Recommendations - **Direct Material Cost Variance (Adverse):** Higher price paid per kg than standard. - *Cause:* Supplier price increase or poor negotiation. - *Action:* Negotiate better prices or find alternative suppliers. - **Direct Material Usage Variance (Favourable):** Used less material than standard. - *Cause:* Efficient use or better quality materials. - *Action:* Maintain current practices. - **Direct Labour Rate Variance (Favourable):** Labour paid less per hour than standard. - *Cause:* Lower wage rates or overtime adjustments. - *Action:* Ensure fair wages to maintain morale. - **Direct Labour Efficiency Variance (Favourable):** Less hours worked than standard. - *Cause:* Improved productivity. - *Action:* Continue training and motivation. - **Variable Overhead Expenditure Variance (Adverse):** Actual overhead much higher than standard. - *Cause:* Inefficient use of resources or price increases. - *Action:* Control overhead costs, review suppliers and processes. - **Variable Overhead Efficiency Variance (Favourable):** Used fewer hours than standard. - *Cause:* Efficiency in labour or machine use. - *Action:* Maintain efficiency. - **Fixed Overhead Expenditure and Efficiency Variances (Favourable):** Lower actual fixed overhead and fewer hours. - *Cause:* Cost control or under-absorption. - *Action:* Review fixed cost allocation. - **Sales Price Variance (Adverse):** Selling price lower than budget. - *Cause:* Discounts or market pressure. - *Action:* Review pricing strategy. - **Sales Volume Variance (Adverse):** Sold fewer units than budget. - *Cause:* Lower demand or competition. - *Action:* Improve marketing and sales efforts. --- **Final Summary:** Tikiri Limited shows favourable cost variances mainly due to efficiency but adverse sales variances due to lower price and volume. Focus on controlling overheads and improving sales performance is recommended.