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Question 1 .

Play Time Toys is organised into two major divisions: marketing and production. The production division is further divided into three departments: puzzles, dolls and video games. Each production department has its own manager.

The entity's management believes that all costs must be covered by sales of the three product lines. Therefore, a portion of headquarters, marketing, and the production division costs are allocated to each product line.

The entity's accountant prepared the following performance report for the manager of the dolls production department.

Performance report dolls production department (Volumes and total dollar amounts are in thousands.) Cost forecasts Budget Actual Variance Sales volume 1000 1 000 1 100 10OF Revenue $12.00/unit $12 000 $12 400 $40OF Direct materials 2.00/unit 2000 2 100 (100)U Direct labour 1.00/unit 1 000 1 225 (225)U Variable factory overhead 1.00/unit 1 000 1 100 (100)U Fixed factory overhead 0.80/unit 800 1 020 (220)U Production division overhead 0.10/unit 100 105 (5)U Headquarters 0.20/unit 200 220 (20)U Marketing 0.50/unit 500 550 (50)U Operating income $ 6.40/unit 5 6 400 5 6 080 $ (320)UPrice standard Quantity standard Plush fabric $ 2 per metre 15 metres per lot Direct labour $10 per hour 2 hours per lotStatic budget Actual (100 000 units) (115 000 units) Variance Sales 5600 000 $621 000 $ 21 000 Direct materials 200 000 227 700 (27 700) Direct labour 125 000 138 090 (13 000) Variable overhead 50 000 57 000 (7 000) Fixed overhead 75 000 75 200 (200) Advertising 20 000 40 000 (20 000) Operating income $130 000 $ 83 100 $(46 900)

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