Windsurfers of Perth Limited makes and sells windsurfing boards in the UK. It buys the board already made (complete with

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Windsurfers of Perth Limited makes and sells windsurfing boards
in the UK. It buys the board already made (complete with all
fittings) but it manufactures the sails and assem- bles the
finished product. It operates a standard variable costing
system and performs variance analysis on a monthly basis.
Sailcloth
Labour
Board
Variable overheads
Standard variable cost for one windsurfer
60 square metres at £7.00 per square metre 20 hours at £8 per
hour
£400
£50
Windsurfers Limited budgeted to sell 90 units in May at a price
of £1,500 each. It esti- mates that its fixed overheads are
£240,000 a year (incurred evenly throughout the year). Variable
overheads are absorbed per windsurfer (not per direct labour hour).
Opening and closing stocks were zero for May.
The actual performance for May was as follows:
Item
Sales
Revenue
Sailcloth
Labour
Board
Variable overheads Fixed overheads
Detail
81 windsurfers
£109,350 total
4,800 square metres, costing £38,400 1,540 hours, costing
£13,860
£420 per windsurfer
£3,240 total
£21,000 total
Tasks:
a) Perform a variance analysis for May in as much detail
as the information will allow. Produce a profit reconciliation
statement and comment on your findings.
(70 marks)
b) Windsurfers of Perth Limited holds the purchasing
department responsible for the price at which materials are
purchased and the manufacturing department responsi-
ble for the quantities of materials used. Comment on this
policy.
(15 marks)
c) Sometimes, managers blame adverse variances on poor
standard setting. Explain how accurate standards can be set and
describe the dangers of setting inaccurate standards. (15 marks)
(Total 100 marks)