Advanced: Preparation of an operating control statement and the computation of labour, material and overhead variances

(a) A factory is planning to produce and sell8000 units of product P during the next 4-week operating period.

Its standard product unit and total costs are as follows:

Total overhead expenditure amounted to £49000 of which variable overhead was £2150.
You are requried to (i) produce an Operating Control Statement which analyses the budget: actual comparisons for the four-week period; (7 marks)
(ii) arrange the results you have produced in a way which will improve management's understanding and interpretation of their meaning, explaining the basis of the presentation you have adopted. (8 marks)

(b) Some consider that the key to fair assessment of management performance is provided by the concept of controllability, i.e. measurements should be based on factors over which management has control. However, identifying controllability may raise complex issues.
You are required to discuss the management accounting problems which arise in attributing performance to managers in a manner which recognizes controllability.

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Costs Total per unit costs () () Direct material Direct labour 1.111 units at 5.40/unit 6.00 48000 0.6 hours at 5.00/hour 3.00 24000 Variable overhead 0.6 hours at 0.50/hour 0.30 2400 Fixed overhead 5.95 47600 The product sells for 16.50/unit. The following details relate to the actual results for the 4-week period: Actual orders received for the 4-week period: 8200 units Actual sales: 7500 units Actual production: 7500 units Units of direct material purchased and issued into production: 7750 units Direct material price per unit: 5.60 Direct labour hours: 4700 Direct labour rate (per hour): 5.25