Question

The following information for July and August were extracted from the costing records of Venus CC:

                                                     July                                    August

Production and sales (units)        12 000                                 10 000

                                                         R                                        R

Costs:

Direct material                             270 000                                225 000

Direct labour                                360 000                                300 000

Factory overhead                         360 000                              331 500

Marketing expenses                     93 000                               87 000

Administrative expenses             153 000                               144 000

At the beginning of September it was estimated that production for that month would be either 13 000 or 14 000 units.

REQUIRED

1. Draw up the flexible budget for September based on

   13 000 and 14 000 units.   

2. At the end of September the cost records revealed that the

   Following costs/expenses were incurred in producing and selling

   13 500 units:

                                                                                       R

            Direct material                                                302 400

            Direct labour                                                   400 500

            Factory overhead                                                        425 250

            Marketing expenses                                        108 450

            Administrative expenses                                 180 900

Draw up a variance analysis report for September and indicate next to each variance whether it is favourable or unfavourable.  

Answer 1

ANSWER

working
	July	August
production sales (units)	12 000	10 000
per unit
direct material (divide cost/units)	22.5	22.5	Variable
direct labour	30	30	Variable
factory overhead	30	33.15	Mixed
marketing expenses	7.75	8.7	Mixed
administrative expenses	1.275	1.44	Mixed
We will use high low method
y=a+bx
factory overhead
(360000-331500)/(12000-10000)	14.25
Fixed cost
360000-(14.25*12000)	189000
marketing expenses
Variable cost(93000-87000)/(12000-10000)	3.00
Fixed cost
93000-(3*12000)	57000
administrative expenses	4.50
(153000-144000)/(12000-10000)
Fixed cost
153000-(4.5*12000)	99000
Ans 1
Flexible budget			working for ans 2
Units	13000	14000	13500
direct material	292500	315000	303750
	(22.5*13000)	(22.5*14000)	(22.5*13500)
direct labour	390000	420000	405000
	(30*13000)	(30*14000)	(30*13500)
factory overhead	374250	388500	381375
	(14.25*13000)+189000	(14.25*14000)+189000	(14.25*13500)+189000
marketing expenses	96000	99000	97500
	(3*13000)+57000	(3*14000)+57000	(3*13500)+57000
administrative expenses	157500	162000	159750
	(4.5*13000)+99000	(4.5*14000)+99000	(4.5*13500)+99000
ans 2 Variance Analysis report
	Atual	Flexible
direct material	$302,400	303750	$1,350	F
direct labor	400500	405000	$4,500	F
factory overhead	425250	381375	43875	U
marketing expenses	108450	97500	10950	U
administrative expenses	180900	159750	21150	U
Total	$1,417,500	$1,347,375	70125	U

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