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.

The Production Director, who has received the statement for his information and attention, is concerned about the results shown therein. He and his stafffeel 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 ofthe Production and Sales Departments for the period. (9 marks)
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.

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Operating statement - six months ended 30 June 1995 Budget units Actual units Variance units (000s) (000s) (000s) Sales Production 1.000 900 100 Adverse 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 55 95 Favourable Variable sales overhead 950 975 25 Adverse Total variable costs 8 950 7.880 1070 Favourable Contribution 2 050 1770 280 Adverse