Question

For this question, you need to prepare a flexible budget and offer a critical analysis of the performance of different items.

The following are the budgeted and actual income statements for Baxter Ltd for the month of July:

Output (production and sales)	Budget 1000 units	Actual 1050 units
Sales Revenue	100,000	104,300
Raw materials	(40 000) (40 000 meters)	(41,200) (40,500 meters)
Labour	(20 000) (2,500 hours)	(21,300) (2,600 hours)
Fixed overheads	(20 000)	19,400
Operating profit	20 000	22,400

All of this is in pounds.

Answer 1

	Original budget	Flexed budget	Actual
Output	1,000 units	1,050 units	1,050 units
(production and sales)
Sales revenue	100,000	105,000	104,300
Raw materials	(40,000)	(42,000)	(41,200)
Labour	(20,000)	(21,000)	(21,300)
Fixed overheads	(20,000)	(20,000)	(19,400)
Operating profit	20,000	22,000	22,400
Analysis: Comparing the flexible budget with actual revenue is less
but operating profit is more in actual. Due to increased raw material
cost and Fixed overhead cost inflexible budget compare to actual,
operating profit is more in the actual result.
Working
	Original budget
	1,000 units
Sales revenue per unit	100
Raw materials	40
Labour	20