CASE STUDY The management team of Thorpe feel that standard costing and variance analysis have little to offer in the reporting of some of the activities of their firm. “Although we produce a range of fairly standardized products” sates the accountant of Thorpe, “prices of many of our raw materials are apt to change suddenly and comparison of actual prices with a pre-determined, and often unrealistic, standard price is of little use. For some of our products we can utilize one of several equally suitable raw materials and we always plan to utilize the raw material which will, in our opinion, lead to the cheapest total production cost. However we are frequently caught out by price changes and the material actually used often proves, after the event, to have been more expensive than the alternative which was originally rejected. “For example, consider the experience over the last accounting period of two of our products, Alpha and Beta. To produce a unit of Alpha we can use either 5 kg of gamma or 5 kg of delta. We planned to use gamma as it appeared it would be the cheaper of the two and ours plans were based on a cost of gamma of $ 3 per kg. due to market movements the actual prices changed and if we had purchased efficiently the cost would have been gamma $ 4.50 per kg delta $4.00 per kg “Production of alpha was 2 000 units and usage of gamma amounted to 10 8000 kg at a total cost of $51 840. “Product of Beta uses only one raw material, epsilon, again the price of this can change rapidly. It was though that epsilon would cost $ 30 per tonne but it fact only paid $ 25 per tonne and if we had purchased correctly the cost would have been less as it was freely available at only $ 23 per tonne. It usually takes 1.5 tonnes of epsilon tp produce 1 tonne of Beta but our production of 500 tonnes of Beta used only 700 tonnes of