Simek plc is a large company operating in the pharmaceuticals industry. At one of its plants the company produces a single product an industrial cleaning agent called 'Agent Z'. Agent Z is sold in 5-litre bottles. The product uses a single ingredient (Liquid Y) which is subject to various heating, cooling and filtration procedures, all of which are carried out by a team of production staff. The purchasing, production and sales managers based at the plant are given considerable independence and autonomy to make their own operational decisions from month-to- month. 39 The company operates a standard absorption costing system and the standard production cost and selling price details per bottle of Agent Z for 2021 are: f Direct materials (6 litres of Liquid Y at 7 per litre) 42 Direct labour (3 hours at 13 per hour) Variable overheads (3 hours at 2 per hour) 6 Fixed overheads (3 hours at 37 per hour) 111 Standard cost of one bottle of Agent z 198 Standard profit margin per bottle Standard selling price of one bottle of Agent z 240 42 Fixed overheads are absorbed on the basis of labour hours. The month of June 2021 has recently ended and the company is holding its monthly performance review meeting. Before the results for the month are circulated at the meeting, the purchasing, production and sales managers are invited to give their initial remarks on the performance of their departments in June. These initial remarks can be summarized as follows: 1. The purchasing manager stated: I'm very pleased with my recent performance. I'm always looking for new suppliers, and I'm a tough negotiator, so I've been able to get some great prices for the company! 2. The production manager stated: There's been a lot of staff turnover recently, so we had a number of new people working on the product in June. The new staff are on more junior pay rates though, so I think I've saved the company a lot of money! 3. The sales manager states: "My performance in June was superb. I worked really hard on finding new customers, and I think I've been smashing my volume targets! The actual financial results for June were then circulated at the meeting, and this included the following six variances for the month: Direct materials price Direct materials usage Direct labour rate Direct labour efficiency Sales price Sales margin volume 13,800 Favourable (F) 22,400 Adverse (A) 19,300 Favourable (F) 18,100 Adverse (A) 97,200 Adverse (A) 16,800 Favourable (F) Required a) Comment on the performance of the three managers in June 2021, making reference both to the remarks of each manager and to the variances that have been calculated for June 2021. (9 marks) You are subsequently given budget data for production and sales of Agent Z for the month of July 2021, as follows: Budgeted production and sales Budgeted selling price Budgeted fixed overheads 5,000 bottles 240 per bottle 555,000 Actual results for July 2021 were as follows: Actual production and sales 5,700 bottles Actual selling price 223 per bottle Actual direct materials purchased and used 36,800 litres of Liquid Y costing 242,880 Actual direct labour 18,300 hours costing 215,025 Actual variable overheads 34,770 Actual fixed overheads incurred 572,000 Both Agent Z and Liquid Y are highly noxious and for this reason no inventories of either are held Required (continued) b) Produce a statement that reconciles the budgeted and actual profit of Simek plc for July 2021, showing the variances in as much detail as possible. Comments on the variances for July 2021 are NOT required. (16 marks)