Roomco manufactures bed sheets and pillowcases, which it supplies to a major hotel chain. It uses a just-in-time system and holds no inventories.
The standard cost for the cotton which is used to make the bed sheets and pillowcases is $5 per m2.
Each bed sheet uses 2 m2 of cotton and each pillowcase uses 0.5 m2. Production levels for bed sheets and pillowcases for November were as follows:
Budgeted production levels Actual production levels
Bed sheets 120,000 120,000
Pillowcases 190,000 180,000
The actual cost of the cotton in November was $5.80 per m2. 248,000 m2 of cotton was used to make the bed sheets and 95,000 m2 was used to make the pillowcases.
The world commodity prices for cotton increased by 20% in the month of November. At the beginning of the month, the hotel chain made an unexpected request for an immediate design change to the pillowcases. The new design required 10% more cotton than previously. It also resulted in production delays and therefore a shortfall in production of 10,000 pillowcases in total that month.
The production manager at Roomco is responsible for all buying and any production issues which occur, although they are not responsible for the setting of standard costs.
Required: A. Calculate the following variances for the month of November, for both bed sheets and pillowcases, and in total:
i) Total material price planning variance
ii) Total material price operational variance
iii) Total material usage planning variance
iv) Total material usage operational variance
B. Assess the performance of the production manager for the month of November.