Advanced: Variable costing reconciliation of budgeted and actual contribution and a discussion of the role of standard costing in a modern manufacturing environment XYZ Ltd makes a single product and uses standard marginal costing. The standard cost data for the product are:The average production volume per period is 500 units but during Period 6 only 450 units were made and sold. At the end of the period the following variance statement was prepared.

After studying the above report, the General Manager expressed surprise that all the cost variances were favourable as he understood that there had been some production problems. Further¬ more, the Sales Manager had told him that he had been able to make some excellent sales during the period which seemed at odds with the statement.
You are required:

(a) to reconcile budgeted contribution to actual contribution, adjust for fixed cost, and disclose the actual profit; (14 marks)

(b) to explain briefly why your revised presenta¬ tion differs from the original statement.
(3 marks)

(c) The General Manager mentions that he has seen an article stating that standard costing is becoming less useful in modem factories. He is puzzled by this and wonders whether the company should stop using the technique.
You are required to prepare a reply to the General Manager explaining what the article refers to, and giving your opinion whether standard costing should continue to be used within the company.
(5 marks) (Total 22 marks) CIMA Stage 3 Management Accounting Techniques

Transcribed Image Text:

Standard cost data per unit Selling price Direct materials (8 kgs at 2) () 175 16 Direct labour (4 hours at 5) 20 Variable overhead (4 hours @ 15) = Marginal cost 60 96