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$1.$ Industrial Chemical Ltd$.($ICL$)$ produces chemical Y$.$ the standard ingredients of $1$ kilogram of Y are:

$0\mathrm{.}65$ kilograms of ingredient F @ Sh$.40$ per Kg

$0\mathrm{.}30$ kilograms of ingredient D @ Sh$.60$ per Kg$.$

$0\mathrm{.}20$ kilograms of ingredient N @ Sh$.25$ per Kg$.$

The following additional information is provided:

$1.$ Production of $4,000$ kilograms of chemical Y was budgeted for October $2004.$

$2.$ The production of chemical Y is entirely automated and production costs attributed to its production comprise only direct materials and overheads.

$3.$ ICL$$s production process works on a just$-$in$-$time $($JIT$)$ inventory system and no ingredients or inventories of chemical Y are held.

$4.$ Overheads budgeted for the production of Y in the month of October $2004$ were as follows

Activity Total amount

Sh$.$

Receipt of deliveries from suppliers $($Standard delivery quantity is $460$ kilograms$)$

Dispatch of goods to customers $($Standard dispatch quantity is $100$ kilograms$)$

$40,000$

$80,000$

$120,000$

$5.$ In October $2004,4,200$ kilograms of Y were produced and the cost details were as follows:

Materials used

$2,840$ kilograms of F$,1,210$ kilograms of D and $860$ kilograms of N at a total cost of Sh$.203,800.$

Actual overhead costs

$12$ supply deliveries at a cost of Sh$\mathrm{.}48,000$ and $38$ customer dispatches at a cost of Sh$.78,000$ were made.

$6.$ ICL$$s budget committee met recently to discuss the preparation of the cost control report for October $2004$ and the following discussion took place:

Chief accountant: $$the overheads do not vary directly worth output and are therefore by definition $$fixed$.$ They should be analyzed and reported accordingly$.$

Management accountant: $$the overheads do not vary with output, but they are certainly not fixed. They should be analyzed and reported on an activity based basis.$$

Required:

Having regard to this discussion,

i$)$ Prepare a variance analysis of the production costs of Y in October $2004.($Separate the material cost variance into price, mixture and yield components and the overhead cost variance into expenditure, capacity and efficiency components using consumption of ingredient F as the overhead absorption base$).(12$ Marks$)$

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