.

	Unit selling price		300.00
	Less: Direct materials: 2.5 metres @ 4.00 per metre		10.00
	Direct labour: 5 hours @ 24.00 per hour		120.00
	Variable overhead: 4.00 per direct labour-hour		20.00
	Contribution		150.00

		Budget (based on old material/supplier)		Actual (based on new material/supplier)
Output (production and sales)		20,000 units		22,000 units
Sales revenue		6,000,000		6,380,000
Less:
Direct materials		200,000		171,600
Direct labour		2,400,000		3,168,000
Variable overheads		400,000		501,600
Fixed overheads		160,000		164,000
Operating profit		2,840,000		2,374,800

[CONTINUED]

Additional information:

• Actual direct material usage totalled 57,200 metres. All materials used during the quarter were sourced from the prospective supplier.
• A total of 132,000 direct labour hours were worked during the quarter.
• During the quarter, a promotional price for the furniture cover was introduced following the recommendation of chicken Ltds marketing director. The marketing director argued that this would not only boost sales but also provide an opportunity to evaluate how customers would respond to their product when the substitute material is used.
• chicken ltd uses a standard variable costing system for internal reporting purposes.

Required:

1. Prepare a flexed budget that takes into account the change in output and sales during the quarter, based on the material from the new supplier.

(15 Marks)

2. Calculate for the quarter:
   1. Sales margin price and volume variances
   2. Direct material quantity and price variances
   3. Direct labour efficiency and rate variances
   4. Variable overhead efficiency and spending variances
   5. Fixed overheads spending variance

(25 Marks)

3. Drawing on your answers in (a) and (b) and any other financial or non-financial consideration you think would be relevant in this case, advise chicken Ltd whether or not it should sign a long-term contract with the new supplier.