Matteck plc specialises in components for the telecoms industry. One of their products is the free-modem. This modem allows users to surf the web using multiple servers. For the month of December 2011 the company expects to produce and sell 5,000 free-modems. The management of Matteck have provided you with the following budgeted information for the production of the free-modem. 1 Direct Material - each unit of production requires 3 kg of raw material, which costs 12 per kg. 2 To produce one unit requires two and a half labour hours at 8 per hour. 3 Variable Production Overheads are charged at one half of the hourly labour rate per item produced. 4 Supervision costs are 3,300 per month. Rent and Rates are 12,000 per annum. 6 Administration Overheads are 2,000 per month. 7 Depreciation is 9,000 per quarter. Due to difficult trading conditions, actual production and sales for December fell by 10% of the budgeted amount. 5 Actual figures for December 2011 were: Direct Material cost Direct Material used Direct Labour cost Direct Labour hours incurred Variable Production Overheads Supervision costs Rent and Rates Administration Overheads Depreciation 160,000 16,000 kg 95,000 10,000 hours 47,500 3,400 1,200 2,100 3,000 The following additional information may also be relevant: (a) The company has managed to locate new materials from an overseas supplier which are less expensive but of a lower quality than the original budget. (b) The company has recently expanded into new areas and has had to employ more highly qualified staff at a higher hourly rate of pay than budgeted to produce this item. This is due to advances in technology and a shortage in the labour market. (c) New machinery was installed on the first day of the month and full set up and testing was not completed until the start of the second week when the machine became fully operational. Note: This is the only information provided, however other issues may have arisen not mentioned above. You may make other assumptions as long as they are reasonable. You should clearly state any assumptions you have made in your answers.