Question

In: Accounting

Norland-Norge AS produces corporate notebooks. Each notebook is designed for an individual customer. The company s...

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

Solutions

Expert Solution

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.

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