After the actual performance of 2019, the following variances have been calculated for Star Ltd.:

Budget Actual Variance

Volume 8.400units 10.800units

Revenue/Costs

Sales $60per unit 504.000 $57,00per unit615.600 111.600F

Direct Material 4,80kg per unit @$6,00per kg 241.920 51.840kg 435.456 (193.536)A

Direct Labour0,60hour per unit @$24per hour120.960 5.832hours160.963 (40.003)A

Fixed Costs 102.000 82.000 20.000F

Profit 39120 (62819) (101.939)A

The sole reason for the material variance was an increase in the purchase price due two a shortage in the market, that made the market price went up to $ 9 per kilo.

Required:

a) Prepare the Flexible Budget and calculate the Competitive Effectiveness and Operating Efficiency variances.

Volume

Revenue/Costs

Sales

Direct Material

Direct Labour

Fixed Costs

Profit

b) Calculate the following variances:

i. Selling price and sales volume contribution variance

ii. Material price planning and material price operational variance

c) Explain the reasons why Star Ltd would be interested in analysing the material price planning versus the material price operational variances.