Question:

LEARNING OUTCOMES

Upon the successful completion of this assessment, the student should be able to demonstrate the ability to:

• Critically assess the benefits and demerits of using variances in decision making

• Identify critical links between variances and dysfunctional behaviour of managers

• Assess the role of “make or buy decisions” in making strategic business choices.

• Calculate key variances.

• Demonstrate decision making abilities under risk.

During the second quarter of the year starting March 2020, the corona virus broke out and a nationwide lock down was enforced by the UK government to combat the pandemic, thus forcing XLG to move all its sales online.

1. Sales and Contribution:

The budgeted total sales for both chemicals X and Y was 1190 with an equal split of 595 between both of them. Actual sales volume for chemical X was 850 and 750 for chemical Y, standard sales price was £35 per unit for chemical X and £30 per unit for chemical Y. The actual sales price achieved in the second quarter were £45 for chemical X and £37 for chemical Y. The standard margin for chemical X was £25 per unit and £20 per unit for chemical Y. one of the reasons for the increased selling price was due to a significant increase in demand for cleaning products as most people became more hygiene conscious in light of the pandemic.

2. Material price:

The sole reason for the variance was an increase in the price of famaQ which is their superior cleaning ingredient with an original standard price of £2.50 per unit. Each unit of chemical X and Y requires 1 unit of famaQ; however, due to the lockdown and restriction on international travel, famaQ which is produced in Brazil had to be imported using air transport which is more expensive in comparison to sea transport, thereby resulting in an increased unit price of £4.50 per unit. XLG actually paid £3.70 per unit for famaQ.

Required:

Calculate the following for the second quarter, showing all workings clearly:

(i) The sales price variance and sales volume contribution variance. (12 marks)

(ii) The material price planning variance and material price operational variance. (8 marks)

(iii) Given the change in operations, critically analyse the merits and demerits of using variances in assessing managers performance.

PART B

Given the risk posed by importing famaQ and how it has affected XLG during the lockdown, the management has required you provide a report assessing the decision to make famaQ in house in the UK or keep importing it from Brazil. You may consider the following additional information:

a) FamaQ gives XLG competitive advantage

b) Demand for chemical X and Y has increased by 45% which is likely to continue according to market research.

c) The cost of making a unit of famaQ in the UK is £3 with delivery times reducing by 15 working days.

GUIDANCE FOR STUDENTS IN THE COMPLETION OF TASKS

NOTE: The guidance offered below is linked to the five common assessment criteria overleaf.

1. Research-informed Literature

Your work must be informed and supported by scholarly material that is relevant to and focused on the task(s) set. You should provide evidence that you have accessed a wide range of sources, which may be academic, governmental andindustrial; these sources may include academic journal articles, textbooks, current news articles, organisationaldocuments, and websites. You should consider the credibility of your sources; academic journals are normally highlycredible sources while websites require careful consideration/selection and should be used sparingly. Any sources you use should be current and up-to-date, mostly published within the last five yearsor so, though seminal/important works in the field may be older. You must provide evidence of your research/own reading throughout your work, using in-text citations in the main body of your work and a reference list that is alphabetical at the end of your work. Please use the Harvard referencing system.

Specific to this assignment: (At least 12 references need to be cited)

2. Knowledge and Understanding of Subject

Your work must demonstrate the growing extent of your knowledge and understanding of concepts and underlying principles associated with the subject area. Knowledge relates to the facts, information and skills you have acquired through your learning. You demonstrate your understanding by interpreting the meaning of the facts and information (knowledge). This means that you need to select and include in your work the concepts, techniques, models, theories, etc. appropriate to the task(s) set. You should be able to explain the theories, concepts, etc. meaningfully to show your understanding. Your mark/grade will also depend upon the extent to which you demonstrate your knowledge and understanding; ideally each should be complete and detailed, with comprehensive coverage.

Specific to this assignment: (A thorough and detailed understanding variance in assessing performance and decision making)

3. Analysis

Your work must contain evidence of logical, analytical thinking, evaluation and synthesis. For example, to examine and break information down into parts, make inferences, compile, compare and contrast information. This means not just describing What! but also justifying: Why? How? When? Who? Where? At all times, you must provide justification for your arguments and judgements. Evidence that you have reflected upon the ideas of others within the subject area is crucial to you providing a reasoned and informed debate within your work. Furthermore, you should provide evidence that you are able to make sound judgements and convincing arguments using data and concepts. Sound, valid conclusions are necessary and must be derived from the content of your work. There should be no new information presented within your conclusion. Where relevant, alternative solutions and recommendations may be proposed.

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