PhotoBox Limited manufactures a range of picture frames which it supplies to retailers throughout Europe. The company operates a standard variable $($marginal$)$ costing system and this allows PhotoBox Limited to keep track of costs and also to operate a simple pricing policy. $$Art Deco$$ is the name of the most popular frame which they manufacture as it appeals to a wide range of customers who are looking for a frame with character. PhotoBox Limited purchases the pre$-$made frame from China, then inserts clear glass and attaches brass plated hooks on the back to complete the frame. The following are the budgeted figures, relating to the $$Art Deco$$ frame for the month of March:

Per Unit

$()$ Total

$()$

Sales $14\mathrm{.}50145,000$

Less Costs:

Pre$-$made frame $3\mathrm{.}55(35,500)$

Glass $(0\mathrm{.}25$ square metres per frame @ $3\mathrm{.}40$ per square metre$)0\mathrm{.}85(8,500)$

Brass plated hooks $(2$ hooks per frame @ $0\mathrm{.}65$ each$)1\mathrm{.}30(13,000)$

Assembly labour $(0\mathrm{.}25$ hours per frame @ $11$ per hour$)2\mathrm{.}75(27,500)$

Variable overhead $(0\mathrm{.}25$ hours per frame @ $1\mathrm{.}30$ per assembly labour hour$)0\mathrm{.}325(3,250)$

Fixed production overhead $(8,725)$

Profit $48,525$

For the month of March $2022,$ the company produced and sold $9,920$Art Deco$$ frames and recorded the following actual results:

Total

$()$

Sales $145,824$

Less Costs:

Pre$-$made frame $($@ $3\mathrm{.}50$ each$)(34,720)$

Glass $($based on $2,500$ square metres$)(8,550)$

Brass plated hooks $($@ $0\mathrm{.}625$ each$)(12,400)$

Assembly labour $($based on $2,440$ hours$)(26,962)$

Variable overhead $($based on assembly hours$)(3,294)$

Fixed production overhead $(8,215)$

Profit $51,683$

The managing director of PhotoBox Limited was pleased to note that actual profit achieved exceeded budgeted profit and has asked for your assistance in explaining the factors that were responsible for this positive result.

$12$

The management accountant of PhotoBox Limited has proposed that for next year the company purchase their frames from a new company, at $15\%$ less than they currently pay. This should help save costs, increase profitability and assist in the management accountant achieving their annual bonus. The new company is based in Asia and is known to under pay employees.

Requirement

$($a$)$ Prepare a profit statement, based on variable $($marginal$)$ costing principles, showing the original budget, flexed budget, actual results and total variances.

$6$ Marks $($b$)$ Prepare a statement that reconciles the budgeted profit with the actual profit for March $2022.$ Your statement should show the variances in as much detail as possible.

$13$ Marks $($c$)$ Outline TWO ethical considerations from the management accountant$$s proposal of purchasing frames from the new supplier next year.

$3$ Marks $($d$)$ Outline TWO criticisms of standard costing.

$3$ Marks Total $25$ Marks