Video Tech Ltd manufactures video game machines. Market saturation and technological
innovations have caused pricing pressures that have resulted in declining profits. To stem the
slide in profits until new products can be introduced, top management has started to focus on
achieving cost savings in manufacturing and increases in sales volume. Sales can be increased
only if production volume increases. Therefore, an incentive program has been developed to
reward those production managers who contribute to an increase in the number of units
produced and achieve cost reductions. In addition, a just-in-time purchasing program has been
implemented, and raw materials are purchased on an as-needed basis.
The production managers have responded to the pressure to improve manufacturing
performance and this has resulted in an increase in the number of completed units over normal
production levels. The video game machines are put together by the assembly group, which
requires parts from both the printed circuit boards (PCB) and the reading heads (RH) groups.
To increase production levels, the PCB and RH groups started to reject parts that previously
would have been tested and modified to meet manufacturing standards. Preventative
maintenance on machines used in the production of these parts has been postponed, with only
emergency repair work being performed to keep production lines moving. The maintenance
department is concerned that there will be serious breakdowns and unsafe operating conditions.
The more aggressive assembly group production supervisors have pressured maintenance
personnel to attend to their machines at the expense of other groups. This has resulted in
machine downtime in the PCB and RH groups which, when coupled with demands for
accelerated parts delivery by the assembly group, has led to more frequent parts rejections and
increased friction between departments. Video Tech uses a standard costing system. The
standard costs for video game machines are as follows:

DATA SHOWN IN IMAGE 1 ATTACHED...

Video Tech prepares monthly performance reports based on standard costs. The following table
shows the contribution margin report for the month of May, when production and sales both
reached 2 200 units. The budgeted and actual unit sales price in May were the same, at $300.

DATA SHOWN IN IMAGE 1 ATTACHED...

Video Tech’s top management was surprised by the unfavourable contribution margin variance in
spite of the increased sales in May. The management accountant, Robert Smith, was assigned to
identify and report on the reasons for the unfavourable results as well as the individuals or groups
responsible. After a thorough review of the data, Robert prepared the following resource usage
report:

DATA SHOWN IN IMAGE 2 ATTACHED...

Robert reported that the PCB and RH groups had supported the increased production levels but
had experienced abnormal machine downtime, resulting in idle personnel. This led to the use of
overtime to keep up with the accelerated demand for parts. The idle time was charged to direct
labour. Robert also reported that the production managers of these two groups had resorted to
rejecting faulty parts, as opposed to testing and modifying those parts. Robert determined that the
assembly group had met management’s objectives by increasing production while utilising lower
than standard hours.
Required:
(1) Calculate the following variances between the budgeted contribution margin and the actual
contribution margin for May. Assume that all raw material purchased during May was placed
into production. Provide all steps of calculations.
(a) direct labour rate variance
(b) direct labour efficiency variance
(c) direct material price variance
(d) direct material quantity variance
(e) variable overhead spending variance
(f) variable overhead efficiency variance
(g) sales price variance
(h) sales volume variance

(5) Prepare a revised contribution margin report showing proper variable cost variances based on
a flexible budget instead of the static budget used by Robert Smith. Use the following format:
Static Flexible Actual Variance
Budget Budget

Units
Revenue
Variable costs:
Direct material
Housing units
Printed circuit boards
Reading Heads
Total direct material
Direct labour
Assembly
Printed circuit boards
Reading Heads
Total direct labour
Variable overhead
Total variable costs
Contribution margin

CAN YOU PLEASE SOLVE QUESTION 1. E AND F

ALSO QUESTION 5 PLEASE !!!
Transcribed Image Text:Standard cost per unit Quantity Cost Total 1 unit $20 $20 Printed circuit boards 2 boards 15 30 Reading heads 4 heads 10 40 Assembly group 2.0 hours 24 48 PCB group 1.0 hours 27 27 RH group 1.5 hours 30 45 Total 4.5 hours Variable overhead* 2 9* Total standard variable cost per unit $219 *Applied on the basis of direct labour: 4.5 direct labour hours @ $2 per hour. Video Tech prepares monthly performance reports based on standard costs. The following table shows the contribution margin report for the month of May, when production and sales both reached 2 200 units. The budgeted and actual unit sales price in May were the same, at $300. Video Tech Ltd Contribution margin report for the month ending 31 May Budgeted Actual Variance Units 2.000 2.200 200 F Revenue $600 000 $660 000 $60 000 F Variable costs: Direct material 180 000 220 400 40 400 U Direct labour 240 000 280 380 40 380 U Variable overhead 18 000 18 800 800 U Total variable costs $438 000 $519 580 $81 580 U Contribution margin $162 000 $140 420 $21 580 U Video Tech's top management was surprised by the unfavourable contribution margin variance in spite of the increased sales in May. The management accountant, Robert Smith, was assigned to identify and report on the reasons for the unfavourable results as well as the individuals or groups responsible. After a thorough review of the data, Robert prepared the following resource usage report: Page 2 of 5 Direct material: Housing unit Direct labour:
Transcribed Image Text:Video Tech Ltd Resource usage report for the month ending 31 May Cost item Actual quantity Actual cost Direct material: Housing units 2 200 units $ 44 000 Printed circuit boards 4 700 boards 75 200 Reading heads 9 200 heads 101 200 Direct labour: Assembly 3 900 hours 93 600 Printed circuit boards 2 400 hours 71 280 Reading heads 3 500 hours 115 500 Total 9.800 hours Variable overhead 18 800 Total variable cost $519 580 Robert reported that the PCB and RH groups had supported the increased production levels but had experienced abnormal machine downtime, resulting in idle personnel. This led to the use of overtime to keep up with the accelerated demand for parts. The idle time was charged to direct labour. Robert also reported that the production managers of these two groups had resorted to rejecting faulty parts, as opposed to testing and modifying those parts. Robert determined that the assembly group had met management's objectives by increasing production while utilising lower than standard hours. Required: (1) Calculate the following variances between the budgeted contribution margin and the actual contribution margin for May. Assume that all raw material purchased during May was placed into production. Provide all steps of calculations. (a) direct labour rate variance (b) direct labour efficiency variance (c) direct material price variance (d) direct material quantity variance (e) variable overhead spending variance (f) variable overhead efficiency variance (g) sales price variance (h) sales volume variance (2) Provide the analysis and breakdown of the total unfavourable variance of $21 580 as shown in the contribution margin report. This should be based on your calculations in (1) above. (3) Identify and briefly explain the factors that might have led to friction between the production managers, and between the production managers and the maintenance manager. Page 3 of 5

Question

Video Tech Ltd manufactures video game machines. Market saturation and technological
innovations have caused pricing pressures that have resulted in declining profits. To stem the
slide in profits until new products can be introduced, top management has started to focus on
achieving cost savings in manufacturing and increases in sales volume. Sales can be increased
only if production volume increases. Therefore, an incentive program has been developed to
reward those production managers who contribute to an increase in the number of units
produced and achieve cost reductions. In addition, a just-in-time purchasing program has been
implemented, and raw materials are purchased on an as-needed basis.
The production managers have responded to the pressure to improve manufacturing
performance and this has resulted in an increase in the number of completed units over normal
production levels. The video game machines are put together by the assembly group, which
requires parts from both the printed circuit boards (PCB) and the reading heads (RH) groups.
To increase production levels, the PCB and RH groups started to reject parts that previously
would have been tested and modified to meet manufacturing standards. Preventative
maintenance on machines used in the production of these parts has been postponed, with only
emergency repair work being performed to keep production lines moving. The maintenance
department is concerned that there will be serious breakdowns and unsafe operating conditions.
The more aggressive assembly group production supervisors have pressured maintenance
personnel to attend to their machines at the expense of other groups. This has resulted in
machine downtime in the PCB and RH groups which, when coupled with demands for
accelerated parts delivery by the assembly group, has led to more frequent parts rejections and
increased friction between departments. Video Tech uses a standard costing system. The
standard costs for video game machines are as follows:

DATA SHOWN IN IMAGE 1 ATTACHED...

Video Tech prepares monthly performance reports based on standard costs. The following table
shows the contribution margin report for the month of May, when production and sales both
reached 2 200 units. The budgeted and actual unit sales price in May were the same, at $300.

DATA SHOWN IN IMAGE 1 ATTACHED...

Video Tech’s top management was surprised by the unfavourable contribution margin variance in
spite of the increased sales in May. The management accountant, Robert Smith, was assigned to
identify and report on the reasons for the unfavourable results as well as the individuals or groups
responsible. After a thorough review of the data, Robert prepared the following resource usage
report:

DATA SHOWN IN IMAGE 2 ATTACHED...

Robert reported that the PCB and RH groups had supported the increased production levels but
had experienced abnormal machine downtime, resulting in idle personnel. This led to the use of
overtime to keep up with the accelerated demand for parts. The idle time was charged to direct
labour. Robert also reported that the production managers of these two groups had resorted to
rejecting faulty parts, as opposed to testing and modifying those parts. Robert determined that the
assembly group had met management’s objectives by increasing production while utilising lower
than standard hours.
Required:
(1) Calculate the following variances between the budgeted contribution margin and the actual
contribution margin for May. Assume that all raw material purchased during May was placed
into production. Provide all steps of calculations.
(a) direct labour rate variance
(b) direct labour efficiency variance
(c) direct material price variance
(d) direct material quantity variance
(e) variable overhead spending variance
(f) variable overhead efficiency variance
(g) sales price variance
(h) sales volume variance

(5) Prepare a revised contribution margin report showing proper variable cost variances based on
a flexible budget instead of the static budget used by Robert Smith. Use the following format:
Static Flexible Actual Variance
Budget Budget

Units
Revenue
Variable costs:
Direct material
Housing units
Printed circuit boards
Reading Heads
Total direct material
Direct labour
Assembly
Printed circuit boards
Reading Heads
Total direct labour
Variable overhead
Total variable costs
Contribution margin

CAN YOU PLEASE SOLVE QUESTION 1. E AND F

ALSO QUESTION 5 PLEASE !!!

Standard cost per unit
Quantity Cost Total
1 unit
$20 $20
Printed circuit boards
2 boards
15
30
Reading heads
4 heads
10
40
Assembly group
2.0 hours
24
48
PCB group
1.0 hours
27
27
RH group
1.5 hours
30
45
Total
4.5 hours
Variable overhead*
2
9*
Total standard variable cost per unit
$219
*Applied on the basis of direct labour: 4.5 direct labour hours @ $2 per hour.
Video Tech prepares monthly performance reports based on standard costs. The following table
shows the contribution margin report for the month of May, when production and sales both
reached 2 200 units. The budgeted and actual unit sales price in May were the same, at $300.
Video Tech Ltd
Contribution margin report for the month ending 31 May
Budgeted Actual
Variance
Units
2.000
2.200
200 F
Revenue
$600 000 $660 000
$60 000 F
Variable costs:
Direct material
180 000
220 400
40 400 U
Direct labour
240 000
280 380
40 380 U
Variable overhead
18 000
18 800
800 U
Total variable costs
$438 000
$519 580
$81 580 U
Contribution margin
$162 000
$140 420
$21 580 U
Video Tech's top management was surprised by the unfavourable contribution margin variance in
spite of the increased sales in May. The management accountant, Robert Smith, was assigned to
identify and report on the reasons for the unfavourable results as well as the individuals or groups
responsible. After a thorough review of the data, Robert prepared the following resource usage
report:
Page 2 of 5
Direct material:
Housing unit
Direct labour:

Video Tech Ltd
Resource usage report for the month ending 31 May
Cost item
Actual quantity
Actual cost
Direct material:
Housing units
2 200 units
$ 44 000
Printed circuit boards
4 700 boards
75 200
Reading heads
9 200 heads
101 200
Direct labour:
Assembly
3 900 hours
93 600
Printed circuit boards
2 400 hours
71 280
Reading heads
3 500 hours
115 500
Total
9.800 hours
Variable overhead
18 800
Total variable cost
$519 580
Robert reported that the PCB and RH groups had supported the increased production levels but
had experienced abnormal machine downtime, resulting in idle personnel. This led to the use of
overtime to keep up with the accelerated demand for parts. The idle time was charged to direct
labour. Robert also reported that the production managers of these two groups had resorted to
rejecting faulty parts, as opposed to testing and modifying those parts. Robert determined that the
assembly group had met management's objectives by increasing production while utilising lower
than standard hours.
Required:
(1) Calculate the following variances between the budgeted contribution margin and the actual
contribution margin for May. Assume that all raw material purchased during May was placed
into production. Provide all steps of calculations.
(a) direct labour rate variance
(b) direct labour efficiency variance
(c) direct material price variance
(d) direct material quantity variance
(e) variable overhead spending variance
(f) variable overhead efficiency variance
(g) sales price variance
(h) sales volume variance
(2) Provide the analysis and breakdown of the total unfavourable variance of $21 580 as shown
in the contribution margin report. This should be based on your calculations in (1) above.
(3) Identify and briefly explain the factors that might have led to friction between the production
managers, and between the production managers and the maintenance manager.
Page 3 of 5

Accepted Answer

1.E.
Variable Overhead Spending Variance = Actual hours for production ( Standard Variable overhead…