Linenpress Limited manufactures pillowcases which it supplies to a major hotel chain. It uses a just-in-time system and holds no inventories. The standard cost for the cotton which is used to make the pillowcases is 5 per m2. Each pillowcase uses 0.5m2 of cotton and production levels for November were as follows: Budgeted production Actual production (units) (units) Pillowcases 190,000 180,000 The actual cost of the cotton in November was 580 per m2 and 95,000m2 was used to make the pillowcases. The world commodity prices for cotton increased by 20% in the month of November. At the beginning of the month, the hotel chain made an unexpected request for an immediate design change to the pillowcases. The new design required 10% more cotton than previously. It also resulted in production delays and therefore a shortfall in production of 10,000 pillowcases in total that month. The production manager at Linenpress is responsible for all buying and any production issues which occur, although he is not responsible for the setting of standard costs. Part A

Calculate the following variances for the month of November:

Material price planning variance;

Material price operational variance;

Material usage planning variance;

Material usage operational variance. (14 marks)

Part B Discuss the performance of the production manager for the month of November in the context of your findings in Part A. (8 marks)

Part C Explain how the use of planning and operational variances can lead to more effective performance evaluation in an organisation. (8 marks)