Reference no: EM132525024

Fittipaldi plc manufactures industrial lubricants for the automotive sector. It is reviewing operations for a three-month period during 2020. The company operates a standard marginal costing system and manufactures a premium grease, for which the following standard revenue and cost data per unit of product is available:

Selling Price £12

Direct material A: 2.5 Kg at £1.70 per Kg

Direct material B: 1.5 Kg at £1.20 per Kg

Direct labour: 0.45 hours at £6.00 per hour

Fixed production overheads for the three-month period were expected to be £62,500

Actual data for the three-month period was as follows:

Sales and production: 48,000 Kg were produced and sold for £580,800

Direct material A: 121,951 Kg were used at a cost of £200,000

Direct material B: 67,200 Kg were used at a cost of £84,000

Direct labour: Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of £117,120

Fixed production overheads were £64,000 Budgeted sales for the three-month period were 50,000 Kg.

Required

Question (a) Calculate the following variances: (i) Sales margin price and sales margin volume variances. (ii) Materials price, mix and yield variances. (iii) Labour rate, labour efficiency and idle time variances.

Question (b) Suggest possible explanations for the following variances: (i) Material price, mix and yield variances.

Question (c) Produce an operating statement for the three-month period reconciling the budgeted contribution to the actual contribution achieved.