Lanister incorporation is a large company operating in Tanzania. One of the company's divisions is a profit centre based in Mwanga which produces and sells a single product. The following statement shows the budgeted profit for the first month of the current financial year:

TZS.

Sales (18,000 units @ 25 each) 450,000

Raw materials (A): 7,200 kg. @ TZS. 3 per kg. (21,600)

Raw materials (B): 3,600 kg. @ TZS. 4 per kg. (14,400)

Raw materials (C): 1,800 kg. @ TZS. 5 per kg. (9,000)

Direct labor: 9,000 hours @ TZS. 11 per hour (99,000)

Variable overhead (TZS. 5.50 per direct labor hour) (49,500)

Fixed overhead (80,000)

Budgeted profit 176,500

The product is at a relatively mature stage in its lifecycle and the division (and its competitors) have had to accept the reality of a gradually shrinking total market size. Another problem is that cost savings are difficult to achieve in

This industry (in particular, raw material prices are increasing). The actual financial outcome for the month was as follows:

TZS.

Sales (17,000 units @ 25.80 each) 438,600

Raw materials (A): 2,475 kg. @ TZS. 3.20 Per kg. (7,920)

Raw materials (B): 5,775 kg. @ TZS. 4.20 Per kg. (24,255)

Raw materials (C): 3,290 kg. @ TZS. 5.10 Per kg. (16,779)

Direct labour: 7,700 hours @ TZS. 11 per hour (84,700)

Variable overhead (45,600)

Fixed overhead (78,000)

Actual profit 181,346

There were no stocks of any kind at the beginning or end of the month. It can be assumed that a standard marginal costing system is used.

Required:

(a) Construct a variance analysis on the above, in which you are required to evaluate and reconcile the budgeted and actual profits for the month in as much detail as is possible from the information provided.

(b) Appraise the strategy adopted by the cork division. Justify your answer in detail using your variances from part (a) to support your view and specify the additional information which would be most useful in enabling you to carry out a more comprehensive appraisal.