Compulsory

Question One

Part A

Makwebo Plc$,$ a premium food manufacturer, is reviewing operations for a three month period of

$2009.$ The company operates a standard marginal costing system and manufactures one product,

XP$,$ for which the following standard revenue and cost data per unit of product is available:

Selling price K$12\mathrm{.}00$

Direct material A $2\mathrm{.}5$ kg at K$1\mathrm{.}70$ per kg

Direct material B $1\mathrm{.}5$ kg at K$1\mathrm{.}20$ per kg

Direct Labour $0\mathrm{.}45$ hours at K$6\mathrm{.}00$ per hour

Fixed production overheads for the three$-$month period were expected to be K$62,500.$

Actual data for the three$-$month period was as follows:

Sales and production $48,000$ units of XP were produced and sold for K$80,800.$

Direct material A $121,951$ kg were used at a cost of K$200,000.$

Direct material B $67,200$ kg were used at a cost of K$84,000.$

Direct labour Employees worked for $18,900$ hours, but $19,200$ hours were

paid at a cost of K$117,120.$

Fixed production overheads K$64,000.$

Budgeted sales for the three$-$month period were $50,000$ units of Product XP$.$

Required

Calculate the following variances

$1.$ Sales volume contribution and sales price variances $(5$ Marks$)$

$2.$ Material price and usage variances for material A and B $(8$ Marks$)$

$3.$ Labor rate and efficiency variances $(4$ Marks$)$

$4.$ Suggest any possible explanation for material price and usage variances $(3$ Marks$)$

Part B

The following details relate to a shop that currently sells $25,000$ pairs of shoes annually:

Selling price per pair K$320$

Purchase cost per pair K$200$

Total annual cost fixed costs

Salaries K$800,000$

Advertising K$320,000$

Other fixed expenses K$800,000$

Required

Calculate the breakeven point using:

a$)$ Contribution per unit

b$)$ Contribution sales ratio

$10$ Marks

Total $(30$ Marks$)$