Varne Chemprocessors is a business that specialises in plastics. It uses a standard costing system to monitor and report its purchases and usage of materials. During the most recent month, accounting period six, the purchase and usage of chemical UK194 were as follows: Purchases/usage: Total price: 28,100 litres 51,704 Because of fire risk and the danger to health, no inventories are held by the business. UK194 is used solely in the manufacture of a product called Varnelyne. The standard cost specification shows that, for the production of 5,000 litres of Varnelyne, 200 litres of UK194 is needed at a total standard cost of £392 (for the 200 litres). During period six, 637,500 litres of Varnelyne were produced.

Required:

(a) Calculate the price and usage variances for UK194 for period six.

(b) The following comment was made by the production manager:

‘I knew at the beginning of period six that UK194 would be cheaper than the standard cost specification, so I used rather more of it than normal; this saved £4,900 on other chemicals.’

What changes do you need to make in your analysis for

(a) as a result of this comment?

(c) Calculate, for each material below, the cumulative variances and comment briefly on the results.

Variances: periods one to six Period UK500 UK800 £ £
1 301 F 298 F 2 251 A 203 F 3 102 F 52 A 4 202 A 98 A 5 153 F 150 A 6 103 A 201 A where F = cost saving and A = cost overrun.AppendixLO1