Price & Efficiency Variances: Flexible Budget Analysis Report

This assignment provides a detailed analysis of price and efficiency variances within a flexible budgeting context. It begins by presenting the budgeted and actual data for pumpkin scones production, including the output, pumpkin purchases, and purchase price. The solution calculates the flexible budget variance by comparing the budgeted cost for actual production with the actual cost, resulting in a favorable variance. Furthermore, it breaks down the flexible budget variance into price and efficiency variances, demonstrating how the favorable price variance (due to a lower actual price per pumpkin) is partially offset by an unfavorable efficiency variance (due to a higher actual quantity of pumpkins used). The assignment concludes by explaining the interplay between these variances and their impact on the overall flexible budget variance. Desklib offers a platform to explore similar assignments and study resources for students.

Running head: PRICE AND EFFICIENCY VARIANCES
Price and Efficiency Variances
Name of the Student:
Name of the University:
Author’s Note:

1PRICE AND EFFICIENCY VARIANCES
Table of Contents
Available Information:...............................................................................................................2
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................2
Answer to question 3:.................................................................................................................3
Bibliography:..............................................................................................................................4

2PRICE AND EFFICIENCY VARIANCES
Available Information:
Particulars Static
Budget Flexible Budget Actual
Output of Pumpkin scones 59000 59200 59200
Purchase of Pumpkin 14750 14800 16000
Purchase price per pumpkin $ 0.92 $ 0.92 $ 0.85
Cost of Pumpkin $ 13,570 $ 13,616 $ 13,600
Answer to question 1:
From the above table, it can be seen that the budgeted cost for actual production is
$13,616 while the actual cost is $13,600.
Therefore, Flexible budget variance = Budgeted cost – Actual cost
= $13,616-$13,600
= $16 (Favourable)
Answer to question 2:
Standard price per Pumpkin (SP) = $0.92
Standard quantity for actual output (SQ) = 14,800 Pumpkins
Actual price per Pumpkin (AP) = $0.85
Actual quantity (AQ) = 16,000 Pumpkins
Price Variance = (SP-AP)*AQ
= ($0.92-$0.85)*16000
= $1,120 (Favourable)

3PRICE AND EFFICIENCY VARIANCES
Efficiency Variance = (SQ-AQ)*SP
= (14,800-16,000)*$0.92
= $1,104 (Unfavourable)
Answer to question 3:
From the above computations it can be observed that, there is a favourable price
variance of $1,120 as the actual price is lower than the budgeted price, on the other hand
there is a unfavourable efficiency variance as the actual quantity is higher than the budgeted
quantity. The joint effect of these two variance resulted into a flexible budget variance of
$16.

4PRICE AND EFFICIENCY VARIANCES
Bibliography:
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects
of production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.