Question

REQUIRED Use the information provided below to prepare the following for March 2020: 2.1. Flexible budget for two different activity levels i.e. 18 000 and 25 000 units (9) 2.2. Performance report (11) 2.3. Comment on the following variances: 2.3.1. Sales (1) 2.3.2. Direct Material (2) 2.3.3. Fixed overheads (2)

INFORMATION Widget Ltd manufactures a single product. It originally planned to produce and sell 12 000 units during the year but the actual activity level was 14 000 units. The budgeted and actual income and cost for the year are as follows:

Original Budget Actual results Volume 12 000 units 14 000 units R R Sales 1 440 000 1 820 000 Cost of sales (1 238 400) (1 620 000) Direct Materials 600 000 784 000 Direct labour 420 000 546 000 Variable overheads 144 000 126 000 Fixed overheads 74 400 164 000 Gross Profit 201 600 200 000

Answer 1

Answer

Comments

Sales

Sales has been increased due to following reasons;

1. Development in product quality.

2. Increment in marketing strategies.

3. Availibility of finance

4. Development in technology and automation

5. Availbility of Suppliers

6. Some other external factors; Economic cycle, Consumers' expectations, Laws and regulations and Competition.

Direct Material

Direct Material has been increased due to following reasons;

1. A climb in steel and aluminum levies powers contractual workers to expand offer costs.

2. Materials regularly need to get shipped the nation over to arrive at their objective.

3. Organizations have to bring to the table a decent compensation to their laborers to remain serious in the commercial center.

4. An ongoing government administering forced a 10% duty on billions of dollars of Chinese merchandise, including numerous development materials. The taxes are planned to increment to 25% in the up and coming year.

5. Steep cost increments in all cases implies less assets to contribute. Organizations aren't buying the same number of new hardware; rather, they're depending on more seasoned models that don't function as proficiently and take more time to make materials.

Fixed overheads

Fixed overheads has been increased due to following reasons;

1. The business development did during the period that was not arranged at the hour of setting financial plans.

2. Increment in at least one overhead costs during the period. For instance, a surprising increment in protection premium of the plant.

3. Wastage and failures in the administration of fixed overhead.