Vegfrost Corporation produces cases of frozen food. During May, the company produced and sold 1,450 cases...

Vegfrost Corporation produces cases of frozen food. During May, the company produced and sold 1,450 cases of food and incurred the following actual costs:

Variable overhead £11,000

Fixed overhead £26,000

Actual labour cost (8,000 direct-labour hours) £151,200

Actual material cost (30,000 kilos purchased and used) £66,000

The actual selling price per case was £240.

Overheads are budgeted and applied using direct-labour hours in a standard costing system.

Standard cost and budget information for May are as follows:

Standard cost per case:

Direct labour (5 hours at £18 per hour) £90

Direct material (20 kilos at £2 per kilo) £40

Variable overhead (5 direct-labour hours at £1.50 per hour) £7.50

Fixed overhead (5 direct-labour hours at £3 per hour) £15

Total £152.50

May sales budget information:

Budgeted revenues £345,000

Budgeted selling price per case £230

Given the perishable nature of the product, to prepare the budget, Vegfrost assumed that all

cases produced in May would be sold (there is no inventory of cases).

Required:

a) Prepare a budgeted profit and loss statement and an actual profit and loss statement for May, using a contribution margin format, and indicate the total profit variance.

b) Flex the budget; calculate the flexible budget variances for all items and the overall flexible budget variance. Indicate if each variance is favourable or unfavourable. When flexing the budget, please note that ‘output volume’ for this business is the number of cases produced and sold.

c) Reconcile actual and planned profit by analysing the variances for sales revenue and all costs items, separately. Be as specific as you can using the data available.

d) In a report format, present the results of the analysis to the owners of Vegfrost and explain them the reasons for the variances. Advise the owners and indicate which additional data you would recommend them to collect to improve the analysis and why.
Word limit: 600 words

Solutions

Expert Solution

a. Total profit variance=budgeted profit-actual profit

= 112375-93784.5=18591

ekkarill92 answered 1 year ago

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