Anomira Ltd is a wholly owned subsidiary of an industrial conglomerate. It produces one standard size of sealing compoun

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Anomira Ltd is a wholly owned subsidiary of an industrial
conglomerate. It produces one standard size of sealing compound
used in the motor vehicle industry. As the new management
accountant of this company, you have been asked to explain why the
actual results differed from the budget for the year just ended.
You ascertain the follow- ing information.
The budget was for a volume of 100,000 units produced and sold,
each using 2 kg of material at £3.00 per kg. The total of variable
overheads was expected to be £100,000 and the fixed overheads
£250,000. Total sales revenue was planned to be £1,500,000 and the
50,000 direct labour hours planned were expected to cost £250,000.
The variable over- head absorption rate is £2.00 per direct labour
hour.
The actual performance for last year showed production of 90,000
units and no change in stock levels over the year. Sales revenue
was £1,440,000 and 196,000 kg of material were used, costing
£529,200. Variable overheads were £94,500 and fixed overheads
£255,000. The total cost of direct labour was £232,750 for 49,000
hours. However, 1,000 of these hours were completely non-productive
due to a breakdown of the heating system during exceptionally bad
winter weather causing the factory to be temporarily closed.
Tasks:
1 Perform a variance analysis (in as much detail as the
information will allow) reconcil- ing the actual profit to the
budgeted profit.
(40 marks)
2 Suggest possible explanations for any significant
variances you have found.
(20 marks)
3 Discuss budgetary control and responsibility accounting
in organizations. Include
comments on any dangers/limitations inherent in this
technique.
(40 marks) (Total 100 marks)