15.19 Continuous improvement. (20 min) 1 Standard quantity input amounts per output unit are Direct Direct materials manufacturing labour January 10.0000 0.5000 February (January × 0.997) 9.9700 0.4985 March (February × 0.997) 9.9400 0.4970 2 The answer is identical to that for requirement 1 of Exercise 15.18 except for the flexible-budget amount. Flexible budget Actual costs (Budgeted input incurred allowed for actual (Actual input Actual input output achieved × Actual price) × Budgeted price × Budgeted price) Purchases Usage Direct (100,000 × €3.10*) (100,000 × €3.00) (98,073 × €3.00) (9,810 × 9.940 × €3.00) materials €310,000 €300,000 €294,219 €292,534
€10,000 U €1,685 F Price variance Efficiency variance Direct (4,900 × €21**) (4,900 × €20) (9,810 × 0.497 × €20) manufacturing €102,900 €98,000 €97,511 labour €4,900 U €489 F Price variance Efficiency variance * * €310,000 ÷ 100,000 = €3.10 ** €102,900 ÷ 4,900 = €21 Using continuous improvement standards sets a tougher benchmark. The efficiency variances for January (from Exercise 15.18) and March (from Exercise 15.19) are January MarchDirect materials €81 F €1,685 U Direct manufacturing labour €100 F €489 U Note : The question assumes that the continuous improvement applies only to quantity inputs. An alternative approach is to have continuous improvement applied to budgeted input cost per output unit (€30 for direct materials in January and €10 for direct manufacturing labour in January. This approach is more difficult to incorporate in a Level 2 variance analysis as Level 2 requires separate amounts for quantity inputs and the cost per input.