Lion Plastics Co makes two products - X and Y. Its budget for the

current year is to produce 240,000 units of X and 120,000 units of Y.

Based on standard specifications, this output should consume:

9,600 kg of material for product X

7,200 kg of material for product Y

The material is common to both products and the expected

purchase price is £7.50kg.

One grade of direct labour (standard labour rate - £5 per hour.)

is used as follows:

Product X - 0.25 standard hour each

Product Y - 0.50 standard hour each

Production overheads are budgeted at £20,000 per month

for fixed and £144,000 for variable overheads for the year.

Overheads are absorbed on the basis of standard hours produced.

The budget for the first month is to produce 20,000 units of X and

10,000 units of Y.

Actual information for the first month is:

Output X - 22,000 units

Output Y - 9,800 units

Direct materials X - 980 kg

) at £8 per kg

Direct materials Y - 560 kg

) at £8 per kg

Direct labour X - 5,800 hours

) at £4.50 per hour

Direct labour Y - 5,000 hours

) at £4.50 per hour

Total production overheads incurred

Fixed

Var

Prod X

10,000

8,000

Prod Y

9,000

6,000

From the above data you are required to:

a) Prepare a statement to show the standard cost of product X and product Y.

(5 marks)

b) Calculate the variances from standard cost that have arisen and prepare a statement for the

Production Manager reconciling standard costs with actual cost for the first month

(15 marks)

c) Comment on the possible reasons for the material and labour costs variances

(5 marks)

Total 25 marks