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Question 3 Dickson Enterprise is a large company that manufactures and sells one product. They use standard costing to reconcile budgeted and actual profit by

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Question 3 Dickson Enterprise is a large company that manufactures and sells one product. They use standard costing to reconcile budgeted and actual profit by producing a statement for management on a monthly basis. You are the ma accountant who has the responsibility for preparing this statement and have been given the following information for the month of March 2009. Budgeted sales and production for 30,000 units Standard cost per unit of the product Direct material: Plastic 5kg e $3 per kg Aluminium 2.5kg $15 per kg Direct labour 2.5 hours at $9 per hour It is the company policy to absorb fixed production overheads at 200% of direct wages. Sales prices are set so as to give a profit of 25% of sales price. The actual data for March 2009 was given below Production and sales 28,500 units Selling price was actually 10% higher than the budget due to changes in market demand Direct material purchased and used: Plastic 148,000 kg costing $3.60 per kg Aluminium 74,000 kg costing g $14.10 per kg The company paid for 74,000 hours of direct labour at an hourly rate of $9.60. Fixed production overhead incurred was $1,500,000. You are required to a) Draft a statement for management that reconciles actual profit to budge profit detailing all appropriate variances [14 pmark) b) Comment on the performance of Dickson Enterprise for the month of March 2009 6 mark c) Discuss the problems which may arise in the development and operation of a standard costing system. 15 mark)

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