Advanced : Reconciliation of budgeted and actual profits The Britten Co Ltd manufactures a variety of products of basically similar composition. Production is carried out by subjecting the various raw materials to a number of standardized operations, each major senes of operations being carried out in a different department. All products are subjected to the same initial processing which is carried out in departments A, Band C; the order and extent of further processing then depending upon the type of end product to be produced.

It has been decided that a standard costing system could be usefully employed within Britten and a pilot scheme is to be operated for six months based initially only on department B. the second department in the initial common series of operations. If the pilot scheme produces useful results then a management accountant will be employed and the system would be incorporated as appropriate throughout the whole firm.

The standard cost per unit of output of department B is:

In the first month of operation of the pilot study (month 7 of the financial year), department B had no work in progress at the beginning and the end of the month. The actual costs allocated to department B in the first month of operation were:

Note 1 Based on normal monthly production of 400 units.

Note 2 Actual cost of output of department A.

Note 3 Based on the actual expenditure on joint manufacturing overheads and allocated to departments in accordance with labour hours worked.
The production manager feels that the actual costs of £59 000 for production of 500 units indicates considerable inefficiency on the part of department B. He says. 'I was right to request that the pilot standard costing system be carried out in department B as I have suspected that they are inefficient and careless - this overspending of £9000 proves I am right Required~

(a) Prepare a brief statement which clearly indicates the reasons for the performance of department B and the extent to which that performance is attributable to department B.
The statement should utilize variance analysis to the extent it is applicable and relevant (14 marks)

(b) Comment on lhe way the pilot standard costing system is currently being operated and suggest how its operation might be improved during the study period.

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Direct labour (14 hours at 2 per hour) Direct materials: (i) output of department A (3 kg at 9 per kg) (ii) acquired by and directly input to department B material X (4 kg at 5 per kg) Variable overhead (at 1 per direct labour () () 27 28 20 47 hour worked) 14 Fixed production overheads: (i) directly incurred by department B (note 1) manufacturing overhead (per unit) 3 (ii) allocated to department B general factory overhead (per unit) 8 11 Standard cost per unit 100