Advanced: Reconciliation of budgeted and actual profits The Britten Co. Ltd manufactures a variety of products of basically similar composition. Produc¬ tion is carried out by subjecting the various raw materials to a number of standardized operations, each major series 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, B and 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 opera¬ tions. If the pilot scheme produces useful results then a management accountant will be employed and the system would be incorporated as appro¬ priate throughout the whole firm.

The standard cost per unit of output of depart¬ ment 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:

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 indi¬ cates 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 the way the pilot standard cost¬
ing system is currently being operated and suggest how its operation might be improved during the study period. (6 marks)
(Total 20 marks) ACCA P2 Management Accounting

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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 hour worked) Fixed production overheads: (i) directly incurred by department B (note 1) manufacturing overhead (per unit) (ii) allocated to department B general factory overhead (per unit) Standard cost per unit 3 27 () () 20 47 14 8 100 11 100 28