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Contribution margin generally reflects the profitability of the company on each unit that is being sold. This thus help substantially the managers in calculating the performance as in a decentralized organization, each units are assigned some particular operational and also the decision making responsibilities which makes them to get benefit. Not only this, under the contribution margin format, as the fixed costs to be incurred in the production of goods and services is fixed, so it gives them added advantage of measuring their performance and also it helps them in knowing whether the selling price and also the sales volume should be increased. Thus it makes them independent and responsible in measuring their performance.
FURNISHING DEPARTMENT= PROFIT/ INVESTED CAPITAL
= 5400000/11250000
=0.48
DRESS MAKING DIVISION = PROFIT/ INVESTED CAPITAL
= 9270000/10687500
= 0.87
FURNISHING DEPARTMENT= PROFIT- (INVESTED CAPITAL *IMPUTED INTEREST RATE)
= 5400000- (11250000*.12)
= 5400000-1350000
= $4050000
DRESS MAKING DIVISION= PROFIT- (INVESTED CAPITAL *IMPUTED INTEREST RATE)
= 9270000- (10687500*.12)
= 9270000-1282500
= $7987500
= 8400000 – (2150000+ 5880000)
= 8400000- 8030000
= $ 370000
Return on sales = Profit/ Sales revenue
= 370000/ 8400000
= 4.4%
Investment turnover = Sales revenue/invested capital
= 8400000/1850000
= 4.54
Return on Investment= Return on sales* Investment turnover
= 0.2 or 20%
On- time delivery: The three performance measures for this would be
Strategies identified |
Business objective |
||
Customer |
On Time delivery |
· Growing the market share · Improving the customer loyalty |
|
Internal |
· Saving the time · Improving the process |
||
Learning and growth |
· Improving and indulging in latest technology · Increasing the motivation |
||
Product quality: Three performance measures are:
Strategies identified |
Business objective |
||
Customer |
Product quality |
· Increasing the customer satisfaction · Building more customers |
|
Internal |
· Reducing the carbon footprint · Improving the production process |
||
Learning and growth |
· Developing more customer base · Increasing the motivation |
= 200000*2.78
= $ 556000
= 200000*2.75
= $550000
So, here $ 6000 is the unfavorable direct material price variance
= 101800 * 2.75
= 279950
= 101000* 2.75
= $ 277750
So, here 200 is unfavorable direct material quantity variance
Actual labour cost= Actual hours * Actual rate
= 8300 * 6.48
=$ 53784
Budget for labour = Actual hours*Standard rate
= 8300 * 6.40
=$ 53120
So, here, 664 is unfavourable direct labour rate variance
Budget for labour = Actual hours*Standard rate
= 8300 * 6.40
=$ 53120
Flexible budget for labour = Standard hours allowed * Standard rate
= 8000* 6.40
= $ 51200
So, here it is 1920 unfavourable direct labour efficiency variance
iii) Variance for variable overhead
Actual variable overhead= $28400
Budget for variable overhead = Actual direct labour hours* Standard rate
= 8300* 6.40
=$ 53120
Here it is favourable variable overhead variance
Budget for variable overhead = Actual direct labour hours* Standard rate
= 8300* 6.40
=$ 53120
Flexible budget = Standard direct labour hours allowed * Standard rate
= 8000 * 6.40
= $ 51200
So it is unfavourable here
Variance for fixed overhead
Fixed overhead budget variance
= actual fixed overhead- budgeted fixed overhead
= 28000 – 12000
= 16000
Fixed overhead volume variance
= budgeted fixed overhead- applied fixed overhead
= 28400 – 12000
= 16400
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