Meteor 1pic manufactures a product ‘QX’ with a standard unit selling price of £40.

In Period 1, the budgeted output was 2000 units but the actual output was 2250 units, which were all sold at £40 per unit. The following information is available for Period 1.
The material used for producing product ‘QX’ was not available from the supplier due to a fire at the supplier’s unit. Meteor pic had to purchase a substitute material from another source to maintain production and sales. The usage and price for the substitute material for Period 1 for one unit of product ‘QX’ was expected to be 2.50 kg at a price of £2.50 per kg. The actual usage of the substitute material in the period was 11 000 kg and the actual cost was £28 500. The substitute material required additional care by the labour force and consequently management agreed to increase the labour rate per hour to £6.50. During Period 1, the labour force was paid for 7000 hours Required:
1 Calculate the budgeted contribution from a 2250 unit base and reconcile it with the actual contribution in Period 1, using the conventional variances method. (5 marks)
2 Discuss the use of planning and operational variances and how they differ from the conventional variance method. (9 marks)
3 Calculate the planning and operational variances for material in Period 1 and compare them with the conventional material variances.

Transcribed Image Text:

Sales price per unit 40.00 12.00 Direct material - 4 kg at 3 per kg Direct labour 3 hours at 6 per hour 18.00 Contribution per unit 30.00 10.00