Xiluva (Pty) Ltd ("Xiluva" or "the Company") is a Polokwane based 'Proudly South African company. The Company produces and sells a variety of indoor plants, with its flagship flower being an indoor Orchid (a complex unique flower known for its odd shape and fragrant smell). Xiluva is known for growing beautiful Orchid's with unique shapes and exotic fragrances. The financial year end of Xiluva is 30 April 2020. Xiluva has experienced strong financial results recently due to the rise in demand for unique indoor plants. A primary driver of the increase in demand is due to more individuals residing in apartment blocks, with limited access to a conventional garden. The unique indoor plants are used to bring an element of the garden into their home. Further, Xiluva has not been severely impacted by the recent drought in Limpopo compared to other plant producers, as it only specialises in indoor plants. Since its inception Xiluva has used a standard absorption costing system, as the production of plants is a repetitive process for each plant. The allocation base for the absorption costing system used is labour hours. The financial director, Hintekani Mudau, believed that standard costing system would aid the Company with cost control and in so doing, maximise profitability. Through discussion with Hintekani regarding the financial performance for the year ended 30 April 2020, she indicated that Xiluva incurred significant expenses on a new marketing campaign in the current year. Further, the recent economic recession has made the trading environment more challenging for the Company. Hintekani also mentioned that the Company focussed on improving the quality of labour in the past financial year. The labour focus was prompted by the resignation of the purchasing manager following allegations of theft. The purchasing manager was subsequently replaced within a short space of time as the role is crucial for Xiluva's operations. Xiluva employees further underwent extensive training to both improve quality of service and prevent future instances of theft. Hintekani Mudau completed the variance analysis relating to production of Xiluva for the financial year ended 30 April 2020. The variance analysis is evaluated for each plant produced separately. Unfortunately, a virus managed to penetrate her computer's firewall which resulted in part of the variance analysis being corrupted. The only information that was recovered from the corrupted file is detailed on the page that follows. The budgeted production of Orchids was 845 plants, whereas the actual production was 820 plants for the 2020 financial year of Xiluva. ? The information below relates to the total production of Orchid's for Xiluva for the year ended 30 April 2020, as well as actual price and quantity information: Price / Input Usage /Efficiency Actual Expenditure/Rate Variance Variance Price Actual Quantity Unripe Seed ? R35 per Capsule R1 584 Unfavourable capsule Actual Quantity Potting Soil R72 per ? Purchased: 8kg kilogram less than standard quantity Used & Phosphorous R760 ? ? Jelly Unfavourable Purchased: 12.5 litres Used & Liquid Nitrate ? ? R990 per Purchased: 67.5 litre litres R14 720 Direct Labour ? ? Worked: 995 hours Unfavourable Variable Manufacturing RO ? ? ? Overheads Fixed Budgeted Volume (Efficiency Variance: Manufacturing & Capacity) R8 450 ? Variance : Overheads Unfavourable Fortunately, information relating to the standard quantities and standard prices of the inputs required to produce Xiluva's Orchid were not impacted by the virus. The standards were set at the beginning of the period, based on the prior year results. The standard raw material inputs and their associated costs to make a single Orchid are as follows: One (1) unripe seed capsule is required per Orchird produced. The unripe seed capsules are purchased at an expected price of $2 each, and an expected exchange rate of R18.00 per US Dollar. The supplier is based in United States of America, often referred to as the international capital of Orchids. The United States of America is known for its high quality unique Orchids produced which is uncommon for other suppliers. Unripe seed capsule are carried at standard cost. Once the Orchid seedling has grown to a specified size, the Orchid is planted in potting soil to encourage further growth. The potting soil is purchased from a local supplier, Mavult, at an expected price of R65 per kilogram. 300g of potting soil is required per Orchid produced. MavuLT is a small empowerment supplier that Xiluva has used for the supply of the potting since inception. Xiluva is reliant on Mavult, as one of the few local empowerment suppliers, to promote its "Proudly South African' image. Potting soil are carried at standard cost. Orchid food comprises two (2) main substances: Phosphorous Jelly and Liquid Nitrate. The phosphorous jelly and liquid nitrate both assisted in the development and growth of the Orchid. The Phosphorous Jelly specifically aids in the flowering and rapid growth of the Orchid, whilst Liquid Nitrate primarily provides strength and hardiness to the stem of the Orchid. These two (2) substances are interchangeable in nature. The standard mix per Orchid produced is 75ml of Liquid Nitrate being used at an expected cost of R980 per litre, and 15ml of Phosphorous Jelly being used at an expected cost of R1 325 per litre. The Phosphorus Jelly and Liquid Nitrate are carried at standard cost. The standard labour input per Orchid produced and the associated cost is as follows: Each Orchid requires 1.5 labour hours, at an expected total cost of labour of R48 per Orchid produced. The total budgeted labour hours are based on the standard labour input per Orchid for the budgeted level of production. The standard manufacturing overhead input and the associated cost is as follows: Variable manufacturing overheads are allocated based on an expected rate of R25 per labour hour. Fixed manufacturing overheads are allocated based on labour hours, and are applied to products at an expected rate of R20 per labour. The following information was obtained relating to the opening and closing balances of Xiluva's Orchid production for the 2020 financial year: There were no seedling gel, potting soil, or Phosphorous jelly on hand at the beginning nor at the end of the period. There were 10 litres of liquid Nitrate on hand at the beginning and at the end of the period. There were 91 unripe seed capsules on hand at the beginning of the period, and there were 28 unripe seed capsules on hand at the end of the period. There was no opening or closing work in progress. Sales: Hintekani Mudau was unfamiliar with the process regarding how to calculate sales variances and as such, these were not computed in the corrupted file. Hintekani has provided the following sales information to assist: Sales Information: Actual Budgeted Selling price R330 R320 Sales volume of Orchids 811 845 The standard gross profit is R74 and the standard contribution margin is R152 per Orchid. The actual gross profit is R63 and the actual contribution margin is R141 per Orchid. REQUIRED MARKS (a) Calculate all variances for April 2020 related to Xiluva's Orchid production to identify any deviation between actual profit and budgeted profit. The table method is to be utilized for calculations and ALL column amounts are to be calculated to derive all variances. All fixed overhead variances should be calculated. A reconciliation between budgeted and actual profit is not (30) required. Mix and yield variances should be ignored. Detailed calculations and formula used must be shown. Professional communication: Presentation & clarity of workings. (b) Draft a memorandum to Hintekani Mudau in which you discuss the reasons for ALL the variances calculated in Part a above. General reasons (4) Specific reasons to Xiluva (Pty)Ltd . (14) Professional communication: Presentation & clarity of explanations (2) (20) Variances should be analysed in as much detail to provide meaningful insight TOTAL MARKS (50) Xiluva (Pty) Ltd ("Xiluva" or "the Company") is a Polokwane based 'Proudly South African company. The Company produces and sells a variety of indoor plants, with its flagship flower being an indoor Orchid (a complex unique flower known for its odd shape and fragrant smell). Xiluva is known for growing beautiful Orchid's with unique shapes and exotic fragrances. The financial year end of Xiluva is 30 April 2020. Xiluva has experienced strong financial results recently due to the rise in demand for unique indoor plants. A primary driver of the increase in demand is due to more individuals residing in apartment blocks, with limited access to a conventional garden. The unique indoor plants are used to bring an element of the garden into their home. Further, Xiluva has not been severely impacted by the recent drought in Limpopo compared to other plant producers, as it only specialises in indoor plants. Since its inception Xiluva has used a standard absorption costing system, as the production of plants is a repetitive process for each plant. The allocation base for the absorption costing system used is labour hours. The financial director, Hintekani Mudau, believed that standard costing system would aid the Company with cost control and in so doing, maximise profitability. Through discussion with Hintekani regarding the financial performance for the year ended 30 April 2020, she indicated that Xiluva incurred significant expenses on a new marketing campaign in the current year. Further, the recent economic recession has made the trading environment more challenging for the Company. Hintekani also mentioned that the Company focussed on improving the quality of labour in the past financial year. The labour focus was prompted by the resignation of the purchasing manager following allegations of theft. The purchasing manager was subsequently replaced within a short space of time as the role is crucial for Xiluva's operations. Xiluva employees further underwent extensive training to both improve quality of service and prevent future instances of theft. Hintekani Mudau completed the variance analysis relating to production of Xiluva for the financial year ended 30 April 2020. The variance analysis is evaluated for each plant produced separately. Unfortunately, a virus managed to penetrate her computer's firewall which resulted in part of the variance analysis being corrupted. The only information that was recovered from the corrupted file is detailed on the page that follows. The budgeted production of Orchids was 845 plants, whereas the actual production was 820 plants for the 2020 financial year of Xiluva. ? The information below relates to the total production of Orchid's for Xiluva for the year ended 30 April 2020, as well as actual price and quantity information: Price / Input Usage /Efficiency Actual Expenditure/Rate Variance Variance Price Actual Quantity Unripe Seed ? R35 per Capsule R1 584 Unfavourable capsule Actual Quantity Potting Soil R72 per ? Purchased: 8kg kilogram less than standard quantity Used & Phosphorous R760 ? ? Jelly Unfavourable Purchased: 12.5 litres Used & Liquid Nitrate ? ? R990 per Purchased: 67.5 litre litres R14 720 Direct Labour ? ? Worked: 995 hours Unfavourable Variable Manufacturing RO ? ? ? Overheads Fixed Budgeted Volume (Efficiency Variance: Manufacturing & Capacity) R8 450 ? Variance : Overheads Unfavourable Fortunately, information relating to the standard quantities and standard prices of the inputs required to produce Xiluva's Orchid were not impacted by the virus. The standards were set at the beginning of the period, based on the prior year results. The standard raw material inputs and their associated costs to make a single Orchid are as follows: One (1) unripe seed capsule is required per Orchird produced. The unripe seed capsules are purchased at an expected price of $2 each, and an expected exchange rate of R18.00 per US Dollar. The supplier is based in United States of America, often referred to as the international capital of Orchids. The United States of America is known for its high quality unique Orchids produced which is uncommon for other suppliers. Unripe seed capsule are carried at standard cost. Once the Orchid seedling has grown to a specified size, the Orchid is planted in potting soil to encourage further growth. The potting soil is purchased from a local supplier, Mavult, at an expected price of R65 per kilogram. 300g of potting soil is required per Orchid produced. MavuLT is a small empowerment supplier that Xiluva has used for the supply of the potting since inception. Xiluva is reliant on Mavult, as one of the few local empowerment suppliers, to promote its "Proudly South African' image. Potting soil are carried at standard cost. Orchid food comprises two (2) main substances: Phosphorous Jelly and Liquid Nitrate. The phosphorous jelly and liquid nitrate both assisted in the development and growth of the Orchid. The Phosphorous Jelly specifically aids in the flowering and rapid growth of the Orchid, whilst Liquid Nitrate primarily provides strength and hardiness to the stem of the Orchid. These two (2) substances are interchangeable in nature. The standard mix per Orchid produced is 75ml of Liquid Nitrate being used at an expected cost of R980 per litre, and 15ml of Phosphorous Jelly being used at an expected cost of R1 325 per litre. The Phosphorus Jelly and Liquid Nitrate are carried at standard cost. The standard labour input per Orchid produced and the associated cost is as follows: Each Orchid requires 1.5 labour hours, at an expected total cost of labour of R48 per Orchid produced. The total budgeted labour hours are based on the standard labour input per Orchid for the budgeted level of production. The standard manufacturing overhead input and the associated cost is as follows: Variable manufacturing overheads are allocated based on an expected rate of R25 per labour hour. Fixed manufacturing overheads are allocated based on labour hours, and are applied to products at an expected rate of R20 per labour. The following information was obtained relating to the opening and closing balances of Xiluva's Orchid production for the 2020 financial year: There were no seedling gel, potting soil, or Phosphorous jelly on hand at the beginning nor at the end of the period. There were 10 litres of liquid Nitrate on hand at the beginning and at the end of the period. There were 91 unripe seed capsules on hand at the beginning of the period, and there were 28 unripe seed capsules on hand at the end of the period. There was no opening or closing work in progress. Sales: Hintekani Mudau was unfamiliar with the process regarding how to calculate sales variances and as such, these were not computed in the corrupted file. Hintekani has provided the following sales information to assist: Sales Information: Actual Budgeted Selling price R330 R320 Sales volume of Orchids 811 845 The standard gross profit is R74 and the standard contribution margin is R152 per Orchid. The actual gross profit is R63 and the actual contribution margin is R141 per Orchid. REQUIRED MARKS (a) Calculate all variances for April 2020 related to Xiluva's Orchid production to identify any deviation between actual profit and budgeted profit. The table method is to be utilized for calculations and ALL column amounts are to be calculated to derive all variances. All fixed overhead variances should be calculated. A reconciliation between budgeted and actual profit is not (30) required. Mix and yield variances should be ignored. Detailed calculations and formula used must be shown. Professional communication: Presentation & clarity of workings. (b) Draft a memorandum to Hintekani Mudau in which you discuss the reasons for ALL the variances calculated in Part a above. General reasons (4) Specific reasons to Xiluva (Pty)Ltd . (14) Professional communication: Presentation & clarity of explanations (2) (20) Variances should be analysed in as much detail to provide meaningful insight TOTAL MARKS (50)