Question

Haigh Ltd produces garden chairs. The budgeted output and sales for the month of April 2020 was 5,000 chairs.

The standard cost is:
Wood 30 sq metres at £4 per sq metre 120.00
Labour 7 hours at £9 per hour 63.00
Variable overheads 7 hours at £5 per hour 35.00
Fixed overheads 7 hours at £10 per hour 70.00
Total production cost 288.00
Standard profit 32.00
Standard selling price 320.00

The actual results were:
Wood 170,000 sq metres at £3.50 per sq metre
Labour 40,000 hours at £10 per hour
Variable overheads £174,000
Fixed overheads £370,000
Sales revenue £1,606,500

Actual production was 5,500 chairs and sales were 5,100 chairs.

a. Prepare a budgeted reconciliation statement for April 2020, which will show the actual profit for the month.

b. Identify the four different types of standards which could be used and the effects the choice of standard would have on the variances calculated.

Answer 1

Ans-a	Calculation of Profit as per Standard of 5100 chairs
	Particulars		Amount
	Sale            (A)	5100 chairs x 320.00	1632000.00
	Less :
	Material -
	Wood	5100chair x 120	612000
	Labour	5100chair x 63	321300
	Variable Overheads	5100chair x 35	178500
	(B)		1111800
	Contribution   (A-B)		520200.00
	Less:    Fixed Cost	5100chair x 70	357000
	Profit		163200.00
	Calculation of Profit on actual basis
	Particulars		Amount
	Sale            (A)	5100 chair x 315	1606500.00
	Less: Cost of Production of 5500 chair
	Wood	170000 sq meter x 3.50	595000.00
	Labour	40000 hours x 10	400000.00
	Variable overheads		174000.00
	(B)		1169000.00
	Add: Value of Closing Stock         (C )	633500 x 400/5500	85018.18
	Contribution      (A-B+C)		522518.18
	less: Fixed Cost		370000.00
	Profit		152518.18
	Reconciliation Statement
	Actual Profit		152518.18
	Add: sale price less charge	5100 chair x 5	25500.00
	Less: cost of variable cost		27818.18
	Add: Extra fixed cost		13000.00
	Profit as per Budget		163200.00
Ans-B	Sale price Variance	(Actual price -Budgeted Price) x No of Unit sold
		(315-320)x5100 unit
		-25500
		25000(A)
	Material Usage Variance	(Budgeted Qty - Actual Qty) x Standard Cost per unit
		(153000- 170000)x 4 per square meter
		-68000
		68000(A)
	Variable cost varaince	Standard Cost - Actual cost
		1111800 - 1083981.82
		27818.18
		27818.18(F)
	Fixed Cost varaince	Standard cost - Actual cost
		357000 - 370000
		-13000
		13000(A)