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Linus Mosesadmin
Asked: November 22, 20212021-11-22T20:01:18+02:00 2021-11-22T20:01:18+02:00In: Cost and Management Accounting

Required: Calculate the Satin variance portion of The Basic Wrap materials mix variance.

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The Naturalista is a manufacturing company specializing in online sales of natural hair beauty and styling products. The company sells 2 types of head wraps. – The Basic and The Electric in a standard sales mix of 1:3. The company sells The Basic wrap for N$204, while The Electric is sold for N$260 per wrap. Both wraps are made using 2 types of fabric – Satin and Silk. The following standard unit costs apply for the year ended June 30th, 2020:

 The Basic WrapThe Electric Wrap
Satin (N$25/meter)37.5050.00
Silk (N$17/meter)30.6042.50
Direct Labour20.0032.00
Variable manufacturing overheads – based on production output15.9025.50

Fixed manufacturing overheads are budgeted at 904,800 per month, based on productive direct labour hours. The factory has a total capacity to accommodate 55 factory workers, working 8,700 productive hours every month.

In the month of March 2020, actual sales were made up 5,000 units of the basic wrap, sold for N$200 each and 20,000 units of the Electric wrap at N$265 per unit. The Naturalista required 9,000 meters of Satin and 10,000 meters of Silk to make to make The Basic Wrap. The Electric Wrap required 44,000 meters of the Satin and 52,000 meters of the Silk.

The Naturalista usually allow a 10% idle time in their budget, however actual idle time in March was only 360 hours of the 9,000 actual hours paid for at N$84.00 per hour. 1,296 productive hours were used to make The Basic wrap.

Actual variable overheads for the month cost N$13.90 per hour for The Basic Wrap and N$26.00 for the Electric Wrap.

Please note:

1. The Naturalista uses absorption costing to value inventory, based on a JIT system for both purchases and production.

2. It takes 15 minutes and 24 minutes to make 1 unit of The Basic and Electric wraps, respectively.

The company is struggling to retain accounting staff and their intern compiled the following incomplete reconciliation of variances:

Budgeted Profit Based on 24,000 budgeted sales units1,675,200
 Add/Less: Unknown Variances ?
 Standard Profit 1,738,000
 Add/less: Total Material Price Variance35000A
 Satin159,000A
 Silk124,000F

Required: Calculate the Satin variance portion of The Basic Wrap materials mix variance.

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