S Inc installs complex satellite navigation systems in cars, at avery large national depot. The standard cost of an installation is shownbelow. The budgeted volume is 1,000 units installed each month. Theoperations manager is responsible for three departments, namely:purchasing, fitting and quality control. S Inc purchases navigationsystems and other equipment from different suppliers, and most items areimported. The fitting of different systems takes differing lengths oftime, but the differences are not more than 25% from the average, so astandard labour time is applied.

Standard cost of installation of one navigation system

The operations department has gathered the following informationover the last few months. There are significant difficulties inretaining skilled staff. Many have left for similar but better paid jobsand as a result there is a high labour turnover. Exchange rates havemoved and commentators have argued that this will make exports cheaper,but S Inc has no exports and has not benefited. Some of the fitters havecomplained that one large batch of systems did not have the correctadapters and would not fit certain cars, but this was not apparent untilfitting was attempted. Rent, rates, insurance and computing facilitieshave risen in price noticeably.

The financial results for September to December are shown below.

Operating statement for S Inc for September to December

A = adverse variance F = favourable variance

Required:

(a) Prepare a report to the operations managerof S Inc commenting on the performance of the company for the fourmonths to 31 December. State probable causes for the key issues you haveincluded in your report and state the further information that would behelpful in assessing the performance of the company.

(15 marks)

(b) Prepare a percentage variance chart formaterial usage and material price for the four-month period. Explain howthis could be used to decide whether or not to investigate thevariances.
 

Transcribed Image Text:

$ Quantity Price ($) Materials 400 1 unit 400 Labour 320 20 hours 16 Variable overheads 140 20 hours 7 Fixed overheads 300 20 hours 15 Total standard cost 1,160 $ Quantity Price ($) Materials 400 1 unit 400 Labour 320 20 hours 16 Variable overheads 140 20 hours 7 Fixed overheads 300 20 hours 15 Total standard cost 1,160

Answer rating: 100% (QA)

To compute the requested ratios for the Carolina Service Company for the year ended December 31 2021 ... View the full answer