Question

Norland-Norge AS produces corporate notebooks. Each notebook is designed for an individual customer. The company s operating budget for September 2008 included these data: Number of notebooks........................................ 15000 Selling price per book........................................ NKr 20 Variable costs per book........................................ NKr 8 Total fixed costs for the month NKr......................... 145000 The actual results for September 2008 were: Number of notebooks produced and sold.................... 12 000 Average selling price per book................................. NKr 21 Variable costs per book.......................................... NKr 7 Total fixed costs for the month NKr........................... 150000 The managing director of the company observed that the operating profit for September was much less than anticipated, despite a higher-than-budgeted selling price and a lowerthan- budgeted variable cost per unit. You have been asked to provide explanations for the disappointing September results. Norland-Norge develops its flexible budget on the basis of budgeted revenue per output unit and variable costs per output without a detailed analysis of budgeted inputs.

Required 1. Prepare a Level 1 analysis of the September performance.

2. Prepare a Level 2 analysis of the September performance.

3. Why might Norland-Norge find the Level 2 analysis more informative than the Level 1

Answer 1

Answer
Norland - Norge
1) Level - 1 Analysing of September, 2008 performance
									($)
Notebook Data	Budgeted at 15000 unit	Actual at 12000 unit	Differences (Budgeted - Actual)
Quantity	Unit Price	Sales	Quantity	Unit Price	Sales	Quantity	Unit Price	Sales	+ (-)
Produced and Sale	15,000	20	3,00,000	12,000	21.00	2,52,000	-3,000	1.00	-48,000	+
Varaible Cost	15,000	8	1,20,000	12,000	7.00	84,000		-1.00	-36,000	-
Fixed Cost	N.A.		1,45,000	12,000		1,50,000			5,000	-
Net Profit	15,000		35,000	12,000		18,000	-3,000		-17,000
2) Level - 2 Analysing of September, 2008 performance
									($)
Notebook Data	Flexible Budgeted at 12000 unit	Actual at 12000 unit	Differences (Budgeted - Actual)
Quantity	Unit Price	Sales	Quantity	Unit Price	Sales	Quantity	Unit Price	Sales	+ (-)
Produced and Sale	12,000	20	2,40,000	12,000	21.00	2,52,000	-	1.00	12,000	+
Varaible Cost	12,000	8	96,000	12,000	7.00	84,000		-1.00	-12,000	-
Fixed Cost	N.A.		1,45,000	12,000		1,50,000			5,000	-
Net Profit ( Sales - Var. cost - Fixed cost)	12,000		-1,000	12,000		18,000	-		19,000
3) Looking to flexible budget and actual performance as provided in Level-2 give the true result of performance.
As the Level 2 analysis give acurate comparison than Level 1 does not provide proper result as production and selling
level was changed from 15,000 to 12,000 due to which variable cost getting effected. So actual performance give profit
of 18,000 than budgeted loss of 1,000. So level 2 Analysis is more informative as get flexible with actual.