Question $19$

Oberdan Ltd is a small company which installs NAVCARPROs $($satellite navigation

systems$)$ in private cars. The NAVCARPROs were purchased from the manufacturer at a

discounted price in March and any faulty systems are not returnable. The fitting time is

consistent over a large range of cars and the company charges a fixed price to most

customers. However, market has become very competitive and during March $2022$ the

sales staff were encouraged to offer discounts to customers to try to increase the volume

of activity.

The standard costs have been set on the basis of operating at a normal capacity of $500$

units per month. Variable overheads are incurred on the basis of labours hours.

The actual results for March $2022$ were as follows:

Required:

$($a$)$ Prepare an operating statement for Oberdan Ltd reconciling budgeted and actual

profit, showing sales variances and two variances for each variable cost variance

and one fixed cost variance.

$(15$ marks$)$

$($b$)$ Identify possible causes for the sales, materials and labour variances you have

calculated. Your answer should use, as far possible, the information provided

about the company's operations in March.

$(5$ marks$)$Oberdan Ltd is a small company which installs NAVCARPROs $($satellite navigation

systems$)$ in private cars. The NAVCARPROs were purchased from the manufacturer at a

discounted price in March and any faulty systems are not returnable. The fitting time is

consistent over a large range of cars and the company charges a fixed price to most

customers. However, market has become very competitive and during March $2022$ the

sales staff were encouraged to offer discounts to customers to try to increase the volume

of activity.

The standard costs have been set on the basis of operating at a normal capacity of $500$

units per month. Variable overheads are incurred on the basis of labours hours.

NAVCARPRO $$ standard cost

$

bought in cost of system $80$

labour: $2$ hours at $$16$ per hour $32$

variable overhead: $2$ hours at $$10$ per hour $20$

fixed overhead $48$

total cost $180$

normal selling price $252$

standard profit $72$

The actual results for March $2022$ were as follows:

Details $ $

Sales $540$ units fitted $129,600$

Bought$-$in cost of a system $550$ units used $41,800$

Labour $1,100$ hours $18,400$

Variable overheads $10,200$

Fixed overheads $28,000$

$98,400$

Profit $31,200$

Required:

$($a$)$ Prepare an operating statement for Oberdan Ltd reconciling budgeted and actual

profit, showing sales variances and two variances for each variable cost variance

and one fixed cost variance.

$(15$ marks$)$

$($b$)$ Identify possible causes for the sales, materials and labour variances you have

calculated. Your answer should use, as far possible, the information provided

about the company$$s operations in March.

$(5$ marks$)$

Total $20$ marks