A pharmaceuticals company has recently developed a new drug called Kabo, which is made using a continuous microbiological process. The process manager is responsible for material procurement. Four material ingredients (K, A, B and O) are used in the processing ofKabo, all of which are obtainable from a variety ofsources. The standard material requirements of 1 kg of Kabo are as follows:

Process losses occur at an even rate throughout the processing operation and tend to rise if impurities are present in the ingredients. The effectiveness ofKabo depends on the quality ofthe ingredients being used and the maintenance ofthe ingredient mixture within close limits ofthat specified above.
At the start of April 1995, 318.6 kg of 40% processed Kabo were held in the division. At the end of April 426.3 kg of 52% processed Kabo were held. During April 831.0 kg of fully processed Kabo were transferred from the division to the stores. During April the following materials were acquired and input to the process:

Required:
As management accountant to the pharmaceuticals company, 1 In regard to the material input in April 1995, calculate:
• the materials total cost variance • the materials price variance • the materials usage variance • the materials mixture variance, and • the materials yield variance.
Present these variances in the form of a financial control report for presentation to the company’s management. You may assume that the opening and closing work-in-progress are subject to normal process losses only. (16 marks)
2 Critically comment upon the following statement made by the company’s finance director in regard to your report: ‘This is an excellent report which tells us all we need to know for both financial and quality controlpurposes. We shouldpay the divisional manager a monthly performance bonus based on the cost variances that are reported.

Transcribed Image Text:

k 0.33 kg @ 104.00 per kg 34.32 ABO 0.28 kg @ 49.00 per kg 13.72 0.23 kg @ 186.00 per kg 42.78 0.42 kg @ 72.50 per kg 30.45 121.27 Total 1.26 kg