Question 1 (Total 50 marks) Mendis Ltd manufactures a single product the Inui, a heat massager Annual budgeted production and sales is 23,000 units The following standard variable costs per unit have been estimated Direct Material (9 Kg 4 Kg) 36 00 Direct Labour (3 hours 8 hour) 24 00 Standard variable cost per unit 60 00 You are also told the following information Estimated selling price 85 per unit Budgeted fixed production overhead for the year amounted to 330,000 The company operates a standard marginal costing system The actual results for the year were as follows Production sales (units) 20,000 Direct materials 176,000 kg 4 2 per kg Direct labour 64,000 8 3 per hour Fixed production overhead 297,000 The 20,000 units sold generated revenue totalling 1,760,000 Your assistant has started to calculate some of the variances and has told you that the Sales Volume Variance is 75,000 adverse, while the Labour Rate Variance is 19,200 adverse, REQUIRED a) Calculate the following variances for the year (18 marks) I) Material Price II) Material Usage III) Labour Efficiency IV) Sales Price V) Overhead Expenditure b) do a variance report for management, reconciling the budgeted and actual profit for the year (7 marks) c) Suggest possible reasons for the variances you calculated in part (a) suggesting any actions that may be taken by the company (15 marks) d) Suggest possible limitations of variance analysis and comment on the suitability of such performance measures in non profit making sectors such as healthcare Suggest alternative performance measures that might be used in such cases (10 marks)

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Question 1 (Total 50 marks) Mendis Ltd. manufactures a single product - the Inui, a heat massager. Annual budgeted production and sales is 23,000 units.

Question 1 (Total 50 marks)

Mendis Ltd. manufactures a single product - the Inui, a heat massager. Annual budgeted production and sales is 23,000 units.

The following standard variable costs per unit have been estimated:


Direct Material (9 Kg @ 4/Kg)	36.00
Direct Labour (3 hours @ 8/hour)	24.00
Standard variable cost per unit	60.00

You are also told the following information

Estimated selling price = 85 per unit

Budgeted fixed production overhead for the year amounted to 330,000.

The company operates a standard marginal costing system.

The actual results for the year were as follows:

Production & sales (units) : 20,000

Direct materials: 176,000 kg @ 4.2 per kg

Direct labour: 64,000 @ 8.3 per hour

Fixed production overhead = 297,000

The 20,000 units sold generated revenue totalling 1,760,000.
Your assistant has started to calculate some of the variances and has told you that the Sales Volume Variance is 75,000 adverse, while the Labour Rate Variance is 19,200 adverse,

REQUIRED:

a) Calculate the following variances for the year:(18 marks)

I) Material Price

II) Material Usage

III) Labour Efficiency

IV) Sales Price

V) Overhead Expenditure

b) do a variance report for management, reconciling the budgeted and actual profit for the year.(7 marks)

c) Suggest possible reasons for the variances you calculated in part (a) suggesting any actions that may be taken by the company.(15 marks)

d) Suggest possible limitations of variance analysis and comment on the suitability of such performance measures in non-profit making sectors such as healthcare. Suggest alternative performance measures that might be used in such cases.(10 marks)