Frolin Chemicals Ltd produces FDN. The standard ingredients of 1kg of FDN are:

0.65 kg of ingredient F ................................@ ?4.00 per kg0.30 kg of ingredient D ................................@ ?6.00 per kg0.20 kg of ingredient N ................................@ ?2.50 per kg1.15?kg

Production of 4000kg of FDN was budgeted for April. The production of FDN is entirely automated and production costs attributed to FDN production comprise only direct materials and overheads. The FDN production operation works on a JIT basis and no ingredient or FDN inventories are held. Overheads were budgeted for April for the FDN production operation as follows:

In April, 4200kg of FDN were produced and cost details were as follows:? Materials used: 2840kg of F, 1210kg of D and 860kg of N total cost ?20 380? Actual overhead costs: 12 supplier deliveries (cost ?4800) were made, and 38 customer despatches (cost ?7800) were processed.Frolin Chemicals Ltd?s budget committee met recently to discuss the preparation of the financial control report for April, and the following discussion occurred:Chief accountant:?The overheads do not vary directly with output and are therefore by definition ?fixed?. They should be analysed and reported accordingly.?Management accountant:?The overheads do not vary with output, but they are certainly not fixed. They should be analysed and reported on an activity basis.?

Requirements:Having regard to this discussion,(a) prepare a variance analysis for FDN production costs in April: separate the material cost variance into price, mixture and yield components; separate the overhead cost variance into expenditure, capacity and efficiency components using consumption of ingredient F as the overhead absorption base;(b) prepare a variance analysis for FDN production overhead costs in April on an activity basis;(c) explain how, in the design of an activity-based costing system, you would identify and select the most appropriate activities and cost drivers.

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Total amount Activity Receipt of deliveries from suppliers (standard delivery quantity is 460kg) (standard dispatch quantity is 100kg) £4000 Despatch of goods to £8000 customers £12000