Malindi limited makes a single product, EX. The standard selling price per unit of product EX, together with the standard cost per unit is detailed as below:

Shs

Selling price3 200

Cost:

Direct material [4 kgs @Shs 200]800

Direct labour [3 hrs @ Shs 360] 1 080

Variable overheads300

Fixed overheads4502 630

Standard profit570

The company budgeted to produce and sell 6 000 units of EX in the year to 31 December 2008. Overheads are absorbed on a machine hour basis. It requires 2 machine hours to produce a unit of EX. The budgeted variable overheads amounted to shs 1.8 million, whereas fixed overheads were budgeted atShs 2.7 million.

The company produced and sold 4 800 units of EX. The summarized income statement for the period is given below:

Shs 000

Sales16 800

Costs:

Material [21 600 kgs]4 860

Labour [13 200 hrs]6 336

Variable overheads1 440

Fixed overheads1 93514 571

2 229

There were a total of 9 000 machine hours recorded in the year to 31 December 2008

Required:

a)Compute the variable overhead absorption rate per machine hour [2 marks]

b)Determine the fixed overhead absorption rate per machine hour [2 marks]

c)Determine the budgeted profit and compute the profit variance[3 marks]

d)Analyze the profit variance by its components in order to show:

i)Material price and usage variance [3 marks]

ii)Labour rate and efficiency variance [3 marks]

iii)Variable overheads expenditure and efficiency variances [3 marks]

iv)Fixed overhead expenditure and volume variances [3 marks]

a)Prepare a statement reconciling the actual profits to the budgeted profits [6 marks]