Advanced: Traditional and activity- based variance analysis Frolin Chemicals Ltd produces FDN. The standard ingredients of 1 kg of FDN are:

production comprise only direct materials and overheads. The FDN production operation works on a JIT basis and no ingredient or FDN inven¬ tories are held.
Overheads were budgeted for April for the FDN production operation as follows:

In April, 4200 kg of FDN were produced and cost details were as follows: • Materials used: 2840kg of F, 1210kg of D and 860kg of N total cost £20380 • Actual overhead costs: 12 supplier deliveries (cost £4800) were made, and 38 customer despatches (cost £7800) were processed. Frolin Chemicals Ltd’s budget committee met recently to discuss the preparation of the financial control report for April, and the following discus¬ sion occurred: Chief Accountant: ‘The overheads do not vary directly with output and are therefore by definition “fixed”. They should be analysed and reported accordingly.’ Management Accountant: ‘The overheads do not vary with output, but they are certainly not fixed. They should be analysed and reported on an activity basis.’ Requirements: Having regard to this discussion,

(a) prepare a variance analysis for FDN produc¬ tion costs in April: separate the material cost variance into price, mixture and yield com¬ ponents; separate the overhead cost variance into expenditure, capacity and efficiency components using consumption of ingredient F as the overhead absorption base;(l 1 marks)

(b) prepare a variance analysis for FDN produc¬ tion overhead costs in April on an activity basis;

(c) explain how, in the design of an activity-based costing system, you would identify and select the most appropriate activities and cost drivers. (5 marks)
(Total 25 marks)
CIMA Stage 3 Management Accounting Applications

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0.65 kg of ingredient F 0.30 kg of ingredient D 0.20 kg of ingredient N 1.15 kg @ 4.00 per kg @ 6.00 per kg @ 2.50 per kg Production of 4000 kg of FDN was budgeted for April. The production of FDN is entirely auto- mated and production costs attributed to FDN