Julia Rudd Ltd is a medium sized manufacturing organisation. The business produces and distributes a single product, the 'RB10'. The standard cost card of the product is shown below.

Julia Rudd Ltd - Standard Cost Card Product: RB10(currently attainable standards)	Nov 2021 Actual results
Description	Quantities and prices	Standard 1 x Unit	2,860 units
Direct materials	2.50 kilos @ 3.60 per kilo	9.00	22,268	For 7,330 kilos
Direct labour	90 minutes @ 11.50 per hour	17.25	51,035	For 4,320 hours
Total unit variable cost:	26.25	73,303
Selling price:	48.25	133,848	For 2,860 units
Contribution:	22.00	60,545

Other information:

Indirect production overheads are fixed at 12,500 per month and standard monthly production and sales are 2,800 units.

You are employed as a trainee management accountant in the finance office of Julia Rudd Ltd and, for November 2021, have submitted the following total variance report:

Julia Rudd Ltd - Profit Reconciliation

December 2020

Standard gross profit B/d ((2,800 units x 22) - 12,500)	49,100
	Favourable	Adverse
Sales: Price variance		4,147
Sales: Margin volume variance	1,320
Direct materials: Price variance	4,120
Direct materials: Usage variance		648
Direct labour: Rate variance		1,355
Direct labour: Efficiency variance		345
Fixed overhead: Expenditure variance	105
Totals:	5,545	6,495	(950)
Actual gross profit:	48,150

Julia Rudd Ltd(cont.):

You have received the following email from Aatifa Abubakar:

Finance office:

Thank you for your total variance report.

However, our monthly management meeting has revealed information that casts doubt on the validity of your report for November 2021:

• As a result of increased supply from overseas and on-line suppliers, we have been forced to reduce our selling price to 47.00 per unit. We hope and expect that this will allow us to maintain our current standard output level (i.e. 2,800 units per month).

• Our direct materials suppliers, because of excess spare capacity, have reduced their prices and we now pay only 3.20 per kilo for our direct materials. There is no change in expected quantity usage (i.e. 2.50 kilos per unit).

• Our direct labour force have, through collective bargaining, negotiated a favourable pay increase to 12.00 per hour. This rate change came into force during November 2021. We expect direct labour efficiency rates to be maintained at 90 minutes per unit in the short-term.

• The fixed production overhead cost has been reduced to 11,500 per month. This is because of a reduction in property rates.

You can see that, for your variance report to support management control decision-making, you will need to recalculate your values taking account of the above financial adjustments.

Regards

Aatifa Abubakar (CFO)

Required:

1. Prepare detailed variance reports to differentiate:

Planning variances (5 marks)

Operational variances (9 marks)

Show all workings

1. Define the controllability concept and, with reference to your work at a. above, explain its application. (6 marks)

Total for question 2 = 20 marks