Anomira Ltd is a wholly owned subsidiary of an industrial conglomerate. It produces one standard size of sealing compound used in the motor vehicle industry. As the new management accountant of this company, you have been asked to explain why the actual results differed from the budget for the year just ended. You ascertain the following information.

The budget was for a volume of 100,000 units produced and sold, each using 2 kg of material at £3.00 per kg. The total of variable overheads was expected to be £100,000 and the ?xed overheads £250,000. Total sales revenue was planned to be £1,500,000 and the 50,000 direct labour hours planned were expected to cost £250,000. The variable overhead absorption rate is £2.00 per direct labour hour.

The actual performance for last year showed production of 90,000 units and no change in stock levels over the year. Sales revenue was £1,440,000 and 196,000 kg of material were used, costing £529,200. Variable overheads were £94,500 and ?xed overheads £255,000. The total cost of direct labour was £232,750 for 49,000 hours. However, 1,000 of these hours were completely non-productive due to a breakdown of the heating system during exceptionally bad winter weather causing the factory to be temporarily closed.

Tasks:

1 Perform a variance analysis (in as much detail as the information will allow) reconciling the actual pro?t to the budgeted pro?t. (10 marks)

2 Suggest possible explanations for any signi?cant variances you have found. (5 marks)