Question from the Institute of Chartered Accountants in Ireland, Professional Examination 3, Management Accounting & Business Finance I, Autumn 1996. (45 minutes)
Meteor plc manufactures a product ‘QX’ with a standard unit selling price of £40.

In Period 1, the budgeted output was 2,000 units but the actual output was 2,250 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 plc 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 7,000 hours.

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