Preparation of an operating control statement and the calculation of labour, material and overhead variances The following statement has been produced for presentation to the general manager of Depart- ment X.

The general manager says that this type of state- ment does not provide much relevant information for him. He also thought that the profit for the month would be well up to budget and was surprised to see a large adverse profit variance. You are required to

(a) re-draft the above statement in a form which would be more relevant for the general manager; (6 marks)

(b) calculate all sales, material, labour and over- head variances and reconcile to the statement (9 marks) produced in (a);

(c) produce a short report explaining the prin- ciples upon which your re-drafted statement is based and what information it provides.

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Month ended 31 October Original Actual budget result Variance () () () Sales 600 000 550 000 (50 000) Direct materials 150000 130000 20000 Direct labour 200 000 189 000 11000 Production overhead: Variable with 50000 46000 4000 direct labour Fixed 25 000 29 000 (4000) Variable selling overhead 75000 75000 72000 3.000 Fixed selling overhead 50000 46000 4000 Total costs 550 000 512000 38000 Profit 50 000 38 000 (12 000) Direct labour hours 50 000 47 500 Sales and production 5000 4 500 units