In: Accounting
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 | ||||||||||
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. |