In: Accounting
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