1. Medicineworld plc is a pharmaceutical company manufacturing specialised high-cost drugs to target inherited disorders. The...

 

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1. Medicineworld plc is a pharmaceutical company manufacturing specialised high-cost drugs to target inherited disorders. The company uses a standard costing system for accounting and control purposes. The company recorded the following results for the first quarter of 2021: Sales: 9,000 vials Materials: 909,000 ml serum 22,500 gm plastic Labour costs: 1,350 hours Variable overheads Fixed overheads Budgeted production and sales for the three-month period was 10,000 vials. Unit information is provided below: Budgeted retail value: Materials: 100ml of serum per vial (£35 per ml) 2 gm of plastic per vial (£0.50 per gm) Labour: 0.1 hours per unit (standard hourly rate £30 per hour) Variable overheads 46,350,000 34,087,500 7,875 35,100 189,000 6,950,000 Fixed overhead recovery per unit Budgeted profit per unit £ per unit 5,000.00 3,500.00 1.00 3.00 11.00 755.00 730.00 Variable overheads are allocated on the basis of labour hours at a rate of £110 per hour. There were no opening or closing inventories of materials or finished goods. REQUIRED: (a) Calculate all appropriate variances arising and prepare a standard cost operating statement reconciling the budgeted and actual profit for the three-month period. (14 marks) (b) Identify one possible cause for each of the variances mentioned in requirement (a) above. (6 marks) (c) To what extent can a system of standard costing be used as a motivational tool? Discuss the behavioural implications of standard costing. (5 marks) (Total 25 marke) 1. Medicineworld plc is a pharmaceutical company manufacturing specialised high-cost drugs to target inherited disorders. The company uses a standard costing system for accounting and control purposes. The company recorded the following results for the first quarter of 2021: Sales: 9,000 vials Materials: 909,000 ml serum 22,500 gm plastic Labour costs: 1,350 hours Variable overheads Fixed overheads Budgeted production and sales for the three-month period was 10,000 vials. Unit information is provided below: Budgeted retail value: Materials: 100ml of serum per vial (£35 per ml) 2 gm of plastic per vial (£0.50 per gm) Labour: 0.1 hours per unit (standard hourly rate £30 per hour) Variable overheads 46,350,000 34,087,500 7,875 35,100 189,000 6,950,000 Fixed overhead recovery per unit Budgeted profit per unit £ per unit 5,000.00 3,500.00 1.00 3.00 11.00 755.00 730.00 Variable overheads are allocated on the basis of labour hours at a rate of £110 per hour. There were no opening or closing inventories of materials or finished goods. REQUIRED: (a) Calculate all appropriate variances arising and prepare a standard cost operating statement reconciling the budgeted and actual profit for the three-month period. (14 marks) (b) Identify one possible cause for each of the variances mentioned in requirement (a) above. (6 marks) (c) To what extent can a system of standard costing be used as a motivational tool? Discuss the behavioural implications of standard costing. (5 marks) (Total 25 marke)

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