1. Anderson Ltd. manufacture gearboxes for use in cars. At the start of the year, the management of Anderson Ltd. estimated that its costs would be: % of sales value Direct labour Direct material Variable production overhead Fixed production overhead Administration overhead 50 12 This was based on the following 80 employees 2000 hours worked by each employee 40 000 gearboxes manufactured in the year as budgeted production 200 unt selling price You have recently been employed by the company to establish a standard costing system. At the end of the year you were able to extract the following information .labour costs 4.40/hour 32 000 units sold . 210/unit selling price 160 000 hours were worked variable production overheads were 640 000 fixed production overheads were 810 000 . administration costs were 350 000 raw material prices were 10% higher than expected total expenditure on raw material was 3.696 M there were no opening or closing stocks of raw materials. (a) You are required to prepare an operating statement for the year, using a standard absorption costing system Calculations should proceed according to the following headings suffixing 'A' for Adverse and for Favourable where appropriate Resulting quantities required for the statement are then entered in the Operating Statement for the Year' sheet shown on page 6 (All working must be shown.) Cost Variances Labour Variances Standard hours = Standard cost/hour = Rate variance= Standard time Actual time= Time variance Efficiency variance= (Add rate and efficiency variances to Operating Statement for the Year" on the final sheet of the calculations.) Material Variances Material price- Material usages andard- -actual= Material usage vari ance = (Add price and usage variances to 'Operating Statement for the Year' on the final sheet of the calculations.) Variable overheads Standard cost- Actual cost- Expenditure variance= Efficiency variance (Add expenditure and efficiency variances to 'Operating Statement for the Year' on the final sheet of the calculations.) Fixed overheads Expenditure variance Volume variance (Add these variances to 'Operating Statement for the Year' on the final sheet of the calculations.) Admin overhead (treat as fixed) Expenditure variance Volume variance = (Add these variances to 'Operating Statement for the Year' on the final sheet of the calculations.) Operating Statement for the Year 000 000 Budgeted Profit Sales variance - price -quantity Cost variances Labour -rate - efficiency Material pnce -usage Variable - expenditure - efficiency Fixed - expenditure - volume Admin - expenditure - volume Actual Profit (b) Give reasons/explanations why the variances in (a) above have occurred for the follo wing ) material price (ii) labour efficiency (iii) fixed overhead expenditure The accountant suggests that a standard marginal costing system may be more suitable. He asks you to outline the strengths and weaknesses of both systems and recommend the most suitable. (c) (d) The Board of Anderson Ltd. want to adopt 'ideal' standards because they feel it will encourage harder work. You are asked to produce a brief report giving your views