Question

MajorCables manufactures electrical and electronic components. The company expects to produce 4000 units of coaxial connectors each month. Budgeted costs are as follows: direct material RM28,000, direct labour RM20,000, variable overhead RM40,000 and fixed overhead RM3000.

Actual production for the month of December is 4100 units. Actual costs incurred for December are as follows: direct material RM28,290, direct labour RM22,000, variable overhead RM44,000 and fixed overhead RM,3000.

Required: Prepare a flexible budget showing comparisons with actual costs and variances.

Answer 1

Computation of flexible budget showing actual costs and variances:

Computation of flexible budget for 4100 units

Particulars	Working	Flexible budget for 4100 units
Direct materials	Cost per unit = RM 7.00 (RM 28,000 / 4000 units) Cost per unit =(Budgeted material cost / budgeted number of units)	RM 28,700 4,100 units *RM 7.00 (Number of units *Cost per unit of direct material)
Direct labor	Cost per unit = RM 5.00 (RM 20,000 / 4000 units) Cost per unit = Budgeted labor cost / budgeted number of units	RM 20,500 4,100 units *RM 5.00 (Number of units * Cost per unit of direct labor )
Variable overhead	Cost per unit = RM 10.00 (RM 40,000 / 4000 units) Cost per unit = (Budgeted variable overhead / Budgeted number of units)	RM 41,000 4,100 units *RM 10.00 (Number of units *Cost per unit of variable overhead)
Fixed Overhead	-	RM 3000

Computation of flexible budget showing actual costs and variances:

Particulars	Actual (4100 units)	Flexible budget (4100 units)	Variances
Direct materials	RM 28,290	RM 28,700 (RM 28,000 / 4000 units)* 4100 units	RM 410 F (favorable)
Direct labor	RM 22,000	RM 20,500 (RM 20,000 / 4000 units) *4100 units	RM 1500 U (Unfavorable)
Variable overhead	RM 44,000	RM 41,000 (RM 40,000 / 4000 units) *4100 units	RM 3000 U
Fixed Overhead	RM 3000	RM 3000	-

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