7. X Ltd makes a single product and uses standard marginal costing. The standard cost data for the product are: Standard cost data per unit Selling price 175 Direct materials (8 kgs at 2) Direct labour (4 hours at 5) Variable overhead (4 hours at 15) Marginal costs The average product volume per period is 500 units but during Period 5 only 450 units were made and sold. At the end of the period the following variance statement was prepared. 16 20 60 96 Results for Period 5 Budget (500 units) Actual Variance (450 units) Sales 87,500 83,250 4,250 A Less: marginal cost Direct 8,000 (3,690 kgs used) 7,650 350 F materials Direct labour 10,000 (1,840 hours worked) 8,100 1,900 F Variable 30,000 28,350 1,650 F overheads Marginal cost Contribution 48,000 39,500 44,100 39,150 24,650 350 A Less: 350 F fixed costs 25,000 14,500 Profit 14,500 After studying the above report, the General Manager expressed surprise that all the cost variances were favourable as he understood that there had been some production problems. Furthermore, the Sales manager had told him that he had been able to make some excellent sales during the period which seemed at odds with the statement. Required: (a) To reconcile budgeted contribution to actual contribution with the use of flexible budgeting approach, adjust for fixed costs and disclose the actual profit; (10 marks) (b) To write a report, briefly explaining the difference between the revised presentation in (a) and the original statement. (10 marks) (c) The General Manager mentions that he has seen an article stating that standard costing is becoming less useful in modern factories. He is puzzled by this and wonders whether the company should stop using the technique. You are required to prepare a reply to the General Manager explaining what the article refers to, and giving your opinion on whether standard costing should continue to be used within the company.