Ad vanced : Plann ing and operating var iances

(a) If standard cost variances are to be Interpreted meaningfully it is obviously important that the nature of the standards themselves is clearly understood.
You are required to suggest alternative bases on which standards might be set, and to discuss the nature and Significance of vanances arising from the use of each basis.
(12 marks)

(b) (i) McPartland Ltd manufactures and sells a single product.
In the quarter to 30 November 1980 sales of 10000 units were budgeted at a unit selling price of £5 and a unit contribution of £1 (after charging variable costs).
The budget had been prepared in the previous spnng, and proved to be inaccurate. Actual sales for the November quarter were 7000 units at a unit selling price of £8, g1ving a unit contribution of £3.
You are required to calculate appropriate sales margin variances on the basis of this information.
(3 marks)
(ii) When reviewing the results for the quarter to 30 November the sales manager ascertained several additional facts.
The total market for the product nationally had been only 45 000 units during the quarter, and not 50 000 units as McPartland had originally anticipated.
McPartland had previously maintained a 20% share of the market for many years. adopting a policy of match1ng the market price. An index of the selling price levels of competitors products had risen to 140, instead of remaining at the level of 100 as originally budgeted.
McPartland's variable costs (all materials) had risen in line with the change 1n the appropriate commodity price index. wh1ch had gone up from the expected level of 1 00 to an actual level of 125.
You are required to calculate a set of variances to take appropriate notice of this additional information, and to discuss their significance.