For cost control and performance evaluation purposes, Karya company operates a standard variable cost accounting. Detailed Information regarding the standard cost of gamelan is given below:

For period 5 the budgeted fixed manufacturing overhead is 60,000 and budgeted production for gamelan is 5,000 units. The actual production and costs for period 5 is as follows:

The market for the purchase of direct materials and the sales of gamelan were stable and Karya company uses flexible-budget variance analysis to control costs and monitor performance. There have been some concerns about the interpretation of flexible-budget variances in period 5:

a) The purchasing manager is convinced that he has purchased wisely and saved the company thousands of pounds in purchase costs by buying the required quantity at a lower price from a new supplier.

b) The production director decided to increase the wage rates for this period, considering all the consequences of the increase; morale was poor and he felt that he had to do something about it.

Questions:

1) Fill in the table below showing, by cost components, the:

a) Original (static) budget [2 marks]

b) Flexible budget [3 marks]

c) Actual costs [2 marks]

d) Total flexible-budget variance and briefly explain why the information provided by flexible budgets is more meaningful than that presented by the original (static) budget. [2 marks]

2) Calculate the following variances:

a) Direct materials price variance [3 marks]

b) Direct materials usage variance [3 marks]

c) Wage rate variance [3 marks]

d) Labor efficiency variance [3 marks]

3) Using the results for question 2) and other information provided above, comment on the performance of the following managers: a) purchasing manager [3 marks] b) production director [3 marks]

Standard variable product cost per unit () Direct materials 100 2 kilos at 50 per unit Direct labour 150 30 hours at 5 per hour Variable overhead per unit* 50 300 Note: *variable overhead varies with units produced. Units of gamelan produced 4800 units Direct materials purchased and used: 9,888 Kg Direct labour:142,512 hours 403,628 741,062 252,384 60,010 1,457,084 Variable manufacturing overhead incurred Fixed manufacturing overhead incurred Original (Static) budget Total flexible- Actual budget Flexible budget costs variance Units of gamelan () () () () Direct materials Direct labour Variable overhead Fixed manuf. Overhead