Question from the Institute of Chartered Accountants in Ireland, Professional Examination 3, Management Accounting & Business Finance I, Autumn 1995. (45 minutes)

The following operating statement for Lavender Ltd for the six months ended 30 June 1995 is to be considered at a management meeting of the Managing Director, Production Director and Management Accountant of the company. h5

The Production Director, who has received the statement for his information and attention, is concerned about the results shown therein. He and his staff feel that they have performed well during the six-month period. He would like to be able to argue this case at the meeting.
The Production Department produced all the production units ordered by the Sales Department. There were no opening or closing stocks. Variable production overhead is variable with direct labour.
REQUIRED 1. Prepare a revised operating statement which more appropriately reflects the performance of the Production and Sales Departments for the period.

2. Give all the production and sales variances. (5 marks)
3. From the revised operating statement and production variances, prepare a short report for the Production Director, based on the relevant information, which would be useful to him in preparing himself for the management meeting. (6 marks)
Total marks = 20

Transcribed Image Text:

OPERATING STATEMENT-SIX MONTHS ENDED 30 JUNE 1995 BUDGET UNITS ACTUAL UNITS VARIANCE UNITS (000s) (000s) (000s) Sales 1,000 900 100 Adverse Production 1,000 900 100 Adverse (000s) (000s) (000s) Sales: 11,000 9,650 1,350 Adverse Direct materials 5,000 4,300 700 Favourable Direct labour 2,000 1,700 300 Favourable Variable production overhead 1,000 905 95 95 Favourable Variable sales overhead 950 975 25 Adverse Total variable costs 8,950 7.880 1,070 Favourable Contribution 2,050 1,770 280 Adverse Fixed production overhead 1,350 1,305 45 Favourable Fixed selling overhead 200 265 Total fixed overheads 1,550 1,570 Profit 500 200 Adverse Adverse Adverse HOURS HOURS HOURS (000s) (000s) (000s) Direct machine hours 100 90 10 Adverse Direct labour hours 200 180 20 Adverse