Kiwifruit Pies (KP) Ltd. is a commercial pie making business, owned and managed by Nigella Horner. KP supplies large kiwifruit pies (3.5 kilograms (kg) in weight) to the local catering industry. Each kiwifruit pie is made by skilled pie bakers from two purchased ingredients, pastry and kiwifruit filling. In summary form, the budgeted and actual results for May are as follows:

ASSIGNMENT 3 ACCY211 SPRING 2017 SYDNEY

Kiwifruit Pies (KP) Ltd. is a commercial pie making business, owned and managed by Nigella Horner. KP supplies large kiwifruit pies (3.5 kilograms (kg) in weight) to the local catering industry. Each kiwifruit pie is made by skilled pie bakers from two purchased ingredients, pastry and kiwifruit filling. In summary form, the budgeted and actual results for May are as follows:

Budget Actual

Number of pies 1,250 1,400

$ $

Sales 187,500 205,800

Variable costs (137,500) (156,450)

Contribution 50,000 49,350

Fixed overheads (22,000) (23,000)

Net profit 28,000 26,350

Nigella is surprised to see that actual profit was below budget despite increased sales. Nigella asks you, her recently recruited management accountant, to investigate and produce a detailed and informative analysis of the firms performance, using standard marginal costing. She supplies you with the following additional information:

Standard Cost Card for a 3.5 kg Kiwifruit pie.

$ per pie

Materials:

Pastry 1 kg at $8 per kg = 8

Kiwifruit filling 3 kg at $20 per kg = 60

Labour: 1.5 hours at $22 per hour = 33

Variable overheads: 1.5 hours at $6 per hour = 9

110

Actual Variable Costs for May.

$

Materials:

Pastry 1,500 kg at $7.80 per kg = 11,700

Pie filling 4,000 kg at $20.00 per kg = 80,000

Labour: 2,250 hours at $23 per hour = 51,750

Variable overheads: = 13,000

Total variable costs 156,450

The pie bakers tell you that meeting the unexpected increase in demand, with no extra staff, was a challenge, especially as the new type of pastry proved to be difficult to work with. Although they were happy to be paid a premium rate for overtime work, they found working regular long hours very tiring.

Nigella tells you that the standards (as per the standard cost card) were carefully revised to take account of the anticipated effect of the new ovens and pie baker training on production efficiency. She says:

I should have got some benefit from all this investment, especially as I ended up spending $1,000 more on training than I budgeted for. I hope your investigation proves that some of the investments I made were worthwhile

Required:

(a) Based on the summary figures only, prepare an operating statement, in columnar format, that compares:

(i) The static budget for 1,250 pies

(ii) A flexible budget for 1,400 pies

(iii) The actual results

30 Marks

(b) Calculate the following variances:

(i) Sales volume variance

(ii) Sales price variance

(iii) Flexible budget variance for variable cost and fixed cost

20 Marks

(c) Calculate the following detailed cost variances:

(i) Materials Price and Efficiency Variance for Ingredients

(ii) Materials Price and Efficiency Variances for Bottles

(iii) Labour Rate and Efficiency Variances

(iv) Variable Overhead Expenditure and Efficiency Variances

40 Marks

(d) Explain the principle of Management by Exception and suggestions as to how Kiwifruit pies can apply this to investigate the above variances.

10 Marks