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:

1. 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)

2. 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)

3. 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)