Lotus is a family run company in North London. They make and sell furniture for home

and business purpose. Most of their products are made from bought-in components

which are assembled by the production department. One of its most popular products

that the company currently produces are storage shelves. Michael, the management

accountant of the company, introduced the system of standard marginal costing so

that budgets may be prepared, and variance analysis can be readily carried out. In

March, the standard costs of the storage shelves are as follows:

Standard Costs per unit:

Direct material (8 feet @ £4.00 per foot): £32

Direct labour (2 hours @ £12 per hour): £24

The standard output (production & sales): 400 units

Actual costs for April

	Original Quantity	New Quantity	£
Output (production & sales)	260 units	1151
Direct materials	3,700 feet	4591	£4.20 per foot
Direct labour	850 hours	1741	Total cost £8,100

The standard selling price of each storage shelve is £120. The total actual revenue

from the sale of the storage shelves was £65,000 in April.

1. Calculate total sales variance, sales price variance and sales volume variance.

2. Calculate material price & material usage variance.

3. Calculate labour rate & labour efficiency variance.

4. Comment on the material price & labour efficiency variance giving 2 possible

reasons for each variance.

5. Critically evaluate the relevance of variances in today's environment.