Question 1 You are the senior management accountant for Carvalino Ltd. Carvalino Ltd produces bedroom furniture made entirely from oak (a type of hardwood). Carvalino Ltd has positioned itself as a manufacturer of high-quality bedroom furniture, which it sells to a range of furniture retailers. Carvalino Ltd is broken down into various divisions, with each division focusing on the production of one particular type of bedroom furniture. Two of these divisions, Divisions A and B. produce wardrobes and beds respectively. You have received the email below from your Managing Director (Helen Gregory) in connection with both Divisions A and B: Hi, I need you to complete two tasks for me relating to the variances for Division A and Division B for last month. Division A This division has been struggling recently and (as you know) the previous production manager left the company a few months ago. The new production manager is now in place and last month was her first full month in charge. I had previously explained to her that there were two key issues that needed to be addressed, and at a recent meeting she assured me that they have both been tackled. The two issues were: The oak being sourced was of poor quality Staff morale in the factory was very low I have included Division A's variance report for last month in Attachment 1 to this email. The standard cost per wardrobe hasn't yet been altered for any changes implemented by the new production manager. Based on the information provided please could you explain possible reasons for the variances and also comment on the performance of the new production manager? Division B The actual financial information for last month has just been received from Division B and is included in Attachment 2. Please could you provide me with a reconciliation of budgeted to actual contribution for last month for Division B, by means of the sales, material, labour and variable overhead variances? Many thanks, Helen The two attachments to the above email are shown on the next page. Adverse Email attachment 1: Division A variance report for last month Division A variance report for last month: Variance Favourable Sales margin volume variance 50,000 Sales price variance Material price variance Material usage variance 25,000 Labour rate variance Labour efficiency variance 13,000 15,000 20,000 12,000 Email attachment 2: Division B financial information for last month Division B The standard cost card information for each bed is as follows: Standard cost card per bed Selling price per bed Materials: 4.2 m' of oak at 32 per m Direct labour: 3.4 hours at 13.25 per hour Variable overheads: 3.4 labour hours at 2.75 per hour Contribution per bed 299.00 (134.40) (45.05) 19.35) 110.20 The budget for last month was to produce and sell 5,400 beds. Information on the actual sales and actual costs for last month is: Actual quantities Sales revenue 5,240 beds produced and sold Materials 23,056 m of oak purchased and used Direct labour 15,720 hours worked Variable overheads 15,720 labour hours worked Actual contribution 1,456,720 (668,624) (216,150) (40,086) 531,860 Required a) Taking into the account the information provided in relation to Division A, suggest possible reasons for the variances reported for Division A and comment on the performance of the production manager of Division A. (Maximum 500 words) (8 marks) b) Calculate the materials, labour, variable overhead and sales variances for last month for Division B in as much detail as the information allows. You are not required to comment on the performance of Division B. (14 marks) c) Reconcile the budgeted contribution of Division B to the actual contribution of Division B for last month by means of all the variances you have calculated in part b) above. (3 marks) (Total 25 marks)