Dolphin Ltd. is a manufacturing company which recently opened a new operation in Galway, which produces and distributes a new type of product. A standard costing system is in use, and the following are the cost standards which were set for last month: Production and sales: 10,000 units of output, at a price of 72 each Raw material: 4 kilograms per unit of output, purchased at a price of 5 per kilogram Direct labour: 2 labour hours (LH) per unit of output, employed at a rate of 12 per LH Fixed overheads: 61,000 for the month However the actual outcome for last month was different from these standards in a number of important respects. The following information is available about the actual outcome: 8,500 units of the product were produced and sold at a price of 68 each. In an effort to reduce production costs, the production manager decided to purchase a slightly cheaper grade of raw materials. The actual price paid was 4.80 for 34,600 kilograms of raw material. The production manager also decided to use a less skilled grade of direct labour, which cost 11.50 per LH. The total amount paid for wages was 209,300. Actual fixed overheads for the month were 58,000. This saving in fixed overheads was achieved because of a reduction in the rent of the Orca's factory, which occurred when the chief executive renegotiated the annual lease of the factory when it expired early last month. /... this question is continued on the next page ... Page 5 of 7 /... Question 3 continued from the previous page ... Required: (a) Calculate Orca Ltd.'s budgeted and actual profit for last month, and then carry out variance analysis (in as much detail as possible from the information provided) so as to reconcile these budgeted and actual profit figures. (28 marks) (b)After reviewing your answer to part (a) above, the chief executive of Dolphin Ltd. told you "I'm very proud of the performance of the production manager; he made the right decisions in buying cheaper grades of raw material and direct labour in order to save money. However the sales team's performance is really disappointing because they sold a much smaller quantity than expected and at a reduced selling price. There is no excuse for the sales team's poor performance". Critically evaluate this statement. Support your answer by reference to your answer to part (a) as necessary. (7 marks) (c) The chief executive has also said that: "Although I am delighted to see the reduction in fixed overheads, I cannot understand how the company accountant came to classify factory rent as a 'fixed' cost in the first place. Surely the fact that I managed to bring about a reduction in factory rent means that it is a variable cost in Orca and should be classified as such in our costing system". Do you agree with this statement? Justify your answer in full.