7 B Ltd has just finalised figures for the production and sale of its new 'Homedesk', designed for use by workers who are working from home much more than they used to, due to the post-pandemic 'new normal'. B Ltd buys in wood and appliances' adapters, which are then assembled by salaried staff into the finished desk. Budgeted sales price and standard variable costs for each 'Homedesk' are as follows Standard sales price (per desk) Standard costs (per desk): Material input: Wood (2 kilograms at 10.00 per kilogram) Adapters (1 adapter at 35.00 per adapter) Standard contribution (per unit) 100.00 20.00 35.00 (55.00) 45.00 B Ltd planned on making and selling 10,000 'Homedesks' during the year ended 31st December 2021. Fixed costs, including salaries, are not absorbed into unit costs and were budgeted to be 120,000 for the year ended 31st December 2021. The actual revenue and costs of the 'Homedesk' for the year have now been calculated: Sales revenue (11,000 desks produced and sold) Costs: 1,045,000 Material input: Wood (26,400 kilograms purchased and used) Adapters (11,000 adapters) 237,600 407,000 (644,600) Actual contribution 400,400 Less: Fixed Costs (105,000) Actual profit 295,400 Using these figures, B Ltd's management accountant has calculated the following variances: Sales volume Sales price Wood (input) price Wood (input) usage Adapter price Adapter usage Fixed costs expenditure Favourable Adverse 45,000 55,000 26,400 44,000 22,000 nil nil 15,000 A Just in Time inventory purchasing and production policy means that B Ltd holds no opening or closing inventory of the wood or adapter inputs, or the 'Homedesk'. UMAD5S-15-3 Page 9 of 12 continued over Some initial comments have been received about performance in respect of 'Homedesk' for the year: The sales director is demanding a bonus for the team because of the higher than expected number of desks that have been sold; The purchasing manager for the wood input says that he has saved the company money by buying in the wood at lower cost than budgeted; The purchasing manager for the adapters argues that her team deserves a share of any bonus as the team has contributed to the saving in fixed costs. Required (a) In so far as can be ascertained from the information provided, use the variances to comment on the performance of the sales director, and both of the purchasing managers, and reach a conclusion as to the overall performance of B Ltd's 'Homedesk' in 2021. (14 marks) (maximum for (a) 700 words) The financial controller of B Ltd has pointed out that, due to constantly changing market prices for inputs, variances should be separated into their planning and operational variances. (b) Explain why it is important to separate variances into their planning and operational elements for a company such as B Ltd. (5 marks) (c) (maximum for (b) 250 words) Discuss the issues to be considered when operating a Just in Time inventory purchasing policy at B Ltd. (6 marks) (maximum for (c) 300 words) (Total: 25 marks)