Management Accounting (26357) - Workshop 2 Question May 2010 - Exam Question 3 - Variance Analysis - QualiCut plc It is April 2010.

The management of QualiCut plc wants to enhance their sales of stub drill by reducing their market selling price by 10% while maintaining the quality of their product. The figures regarding the per unit cost using a standard variable costs approach are as follows: Variable overheads (15 minutes, at 2 per hour) Direct materials (100 g of steel, at 0.50 per kg) Direct labour (30 minutes, at 6 per hour) The amount of budgeted fixed annual overhead costs is 60,000, which is allocated evenly throughout the year. The market price of QualiCuts stub drill is now 4.50. The standard new adjusted selling price of their product will reflect their market ambitions and will be implemented with effect from 1st May 2010. The company believes that, for May 2010, they will be able to produce 150,000 drills and sell all of them despite the current economic downturn.

The actual figures in May 2010 are indicated as follows: Sales: Production: Direct materials: Direct wages: Variable overheads: Fixed overheads: 140,000 units at 3.90 each 140,000 units 18,000 kgs at 0.45 per kg 72,000 hours at 6.50 per hour 68,000 4,800

Required a) Provide a reconciliation statement of May's actual and original budget profit data for QualiCut plc, showing all relevant variances. (30 marks) b) Discuss the usefulness of variance analysis in general, and explain specifically what is meant by management by exception. Is the latter relevant , given your budget and actual profit figures in (a)? (20 marks) TOTAL 50 marks