1. Set out below are the variances for the month of June 2020 for Kisoro Division of Gulu Group Plc which uses a flexed budgeting system. Labour and materials are variable costs.

£’000
Original budget	1,010
Sales (contribution) volume variance	220
Sales price variance	(200)
Labour rate variance	(120)
Labour efficiency variance	(200)
Material price variance	500
Material usage variance	(450)
Fixed cost variance	0
Actual profit	760

Required: Write a report to the Management of Gulu Group plc, providing possible reasons as to what might have caused these variances. Your report should demonstrate your depth of understanding of these variances and what might trigger them.

• Overtime

2. You have been retained as a consultant to Fort Portal Group plc, which has a division listed structure. The Group CEO has said to you:

‘‘If we leave the budgeting process to the divisional managers, they set themselves quite easy targets that they are likely to achieve, but which when summed together do not give the overall group results which I am aiming for and the stock market is expecting. But if we impose budgets from above, we don’t seem to get ‘‘buy-in’’ from the divisions and often the budgets are not achieved.’’

Required:

1. Write a memo to the CEO of Fort Portal Group plc suggesting how you think this dilemma might be remedied.

2. ‘‘Labour efficiency variance is an indication of managerial inefficiency and poor planning’’. Discuss the above statement and explain possible reasons for the occurrence of labour efficiency variance.