Reference no: EM133104691

Question - Jayrod Plc produces standard electrical goods using a marginal cost accounting system. Information, relating to Product PK65, which is made within one of the departments, is provided below:

Product MH65 Standard Marginal Product Cost per Unit (£) Direct Material - 20 kilograms @ £3 per kg 60

Direct Labour - 3 hours @ £15 per hour 45 Variable Production Overhead* 12

Total 117 *Variable Production Overhead varies with units produced.

Budgeted Fixed Production Overhead per month: £200,000. Budgeted Production of Product PK65: 10,000 units per month.

Actual Production and costs for Month 6 are as follows:

Required -

(a) Prepare a columnar statement showing, by element of cost, the: i. Original Budget. ii. Flexed Budget. iii. Actual. iv. Total Variance.

(b) Sub-divide the variances for direct material and direct labour shown in your answers (i) to (iv) above to be more informative for managerial purposes.

(c) Discuss the purposes of standard costing, highlighting some of the key values and limitations associated with the use of variance analysis.