Question 3 Standard Costing and Sales Performance [20 marks] Background Information Suppose that you are the CEO of Fly-a-Kite Company, which manufactures a variety of kite kits. Lily, the assistant accountant of Fly-a-Kite Company, has prepared a variance analysis report for product costs and sales performance for this financial year, so that you can identify areas in need of improved cost control. The company has established a policy that variances should be investigated if the variance relative to sales is more than 5%. The sales revenue this year was $760,000. Lily has calculated price and efficiency variances for materials as followings: Material price variance: $65,000F; Material efficiency variance: $160,000U. Given the above variances, Lily provides the following recommendations: Price variance is large and favourable, and thus, purchase managers should be rewarded with a bonus; Standards are purely set by top managers, and thus have no problems. The sales growth was 20% this year. Thus, the sales manager has done a good job in generating sales and should be rewarded with a bonus. Required: Do you agree with Lily's recommendations? Why or why not? Be concise and provide specific examples if necessary. Suggested time allocation: no more than 20 minutes. Your comments