Sembawang Electronics Ltd (SEL) is a manufacturer of component parts used in the biotechnology industry. The company has been on a growth trajectory with the government's emphasis on the biotechnological sector.

SEL has been actively expanding its production facilities to meet the rapid growth. With growing maturity in this sector however, the company has also been facing stiff competition and management has been monitoring the performance of the company very closely.

The variance analysis prepared by the management accountant for the most recent year ended March 2022 is as follows:

	Master	Actual	Variance
Sales (units)	10,000	12,000	2,000
	$'000	$'000	$'000
Sales	1,500	1,750	250 (F)
Materials	(500)	(575)	(75) (U)
Labour	(300)	(310)	(10) (U)
Production overheads	(400)	(500)	(100) (U)
Selling, general and admin costs	(100)	(100)	0
Operating income	200	265	65 (F)

As this is the final result for the financial year, she expects intense discussion at the next management meeting. She is apprehensive about the upcoming meeting given the less than satisfactory performance of the factory manager.

The following additional information has been gathered:

• A higher grade of skilled labour was used to meet with the increased production requirements. They were paid $40 per hour while the budgeted rate was $30 per hour.
• The actual price paid per kilogram of materials was per budgeted. 1 kilogram of material per component is required per the standard cost card.
• Budgeted production overheads comprise 60% fixed cost and 40% variable costs.
• Budgeted selling and distribution costs consist of 50% fixed cost and 50% variable costs.
• Production is equal to sales.

Required:

a. Explain how would the factory manager's behaviour be affected if his/her performance is assessed using the current variance report.

b. Produce a more appropriate performance evaluation report.

c. Compute and show as many variances for sales, materials and labour in as much detail as the available information allows. Give one (1) possible explanation for each variance you compute.

d. Explain how the flexed budget calculations might differ if they were prepared using throughput accounting principles. Assess if this would be an appropriate analysis in this case. Further calculations are not required.