Data Question IM 18.2 You are employed as the assistant management accountant in the group accoun- Intermediate: tant's office of Hampstead plc. Hampstead recently acquired Finchley Ltd, a small Reconciliation of company making a specialist product called the Alpha. Standard marginal costing is standard and used by all the companies within the group and, from 1 August, Finchley Ltd will actual cost for a also be required to use standard marginal costing in its management reports. Part of variable costing your job is to manage the implementation of standard marginal costing at Finchley system Ltd John Wade, the managing director of Finchley, is not clear how the change will help him as a manager. He has always found Finchley's existing absorption costing system sufficient. By way of example, he shows you a summary of its management accounts for the three months to 31 May. These are reproduced below. Statement of budgeted and actual cost of Alpha Production - 3 months ended 31 May Alpha production Actual Budget Variance (units) 10 000 12 000 Inputs 32 000 metres 70 000 hours (E) Inputs 377 600 36 000 metres 422 800 72 000 hours () 432 000 54 400 450 000 27 200 Materials Labour Fixed overhead absorbed Fixed overhead unabsorbed 330 000 396 000 66 000 75 000 1 205 400 0 (75000) 1 278 000 72 600 John Wade is not convinced that standard marginal costing will help him to man- age Finchley. 'My current system tells me all I need to know, he said, 'As you can see, we are 72 600 below budget which is really excellent given that we lost pro- duction as a result of a serious machine breakdown.' To help John Wade understand the benefits of standard marginal costing, you agree to prepare a statement for the three months ended 31 May reconciling the standard cost of production to the actual cost of production. Task 1 (a) Use the budget data to determine: (i) the standard marginal cost per Alpha; and (ii) the standard cost of actual Alpha production for the three months to 31 May (b) Calculate the following variances: (i) material price variance; (ii) material usage variance; (iii) labour rate variance; (iv) labour efficiency variance; (v) fixed overhead expenditure variance. (c) Write a short memo to John Wade. Your memo should: (1) include a statement reconciling the actual cost of production to the stan- dard cost of production; (ii) give two reasons why your variances might differ from those in his origi- nal management accounting statement despite using the same basic data; (iii) briefly discuss one further reason why your reconciliation statement pro- vides improved management information. Data On receiving your memo, John Wade informs you that: the machine breakdown resulted in the workforce having to be paid for 12 000