X Ltd uses an automated manufacturing process to produce an industrial chemical, Product P. X Ltd operates a standard marginal costing system. The standard cost data for Product P is as follows:

In order to arrive at the budgeted selling price for Product P the company adds 80% mark-up to the standard marginal cost. The company budgeted to produce and sell 5000 units of Product P in the period. There were no budgeted inventories of Product P. The actual results for the period were as follows:

Required 1 Prepare an operating statement which reconciles the budgeted profit to the actual profit for the period. The statement should include the material mix and material yield variances.

2 The Production Manager of X Ltd is new to the job and has very little experience of management information. Write a brief report to the Production Manager of X Ltd that:
a interprets the material price, mix and yield variances;
b discusses the merits, or otherwise, of calculating the materials mix and yield variances for X Ltd.
Advanced level

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Standard cost per unit of Product P Materials A 10 kg @ 15 per kilo B 8 kg @ 8 per kilo C5 kg @ 4 per kilo 23 kg Total standard marginal cost Budgeted fixed production overheads 150 64 20 234 350 000