Fixit Ltd is a manufacturing company which produces a fixed budget for planning purposes. Set out below is the fixed monthly budget of production costs, together with the actual results observed for the month of July Year 7.

In preparing the fixed budget, the following standards were adopted:

The following additional information is available concerning the actual output:

(a) The actual usage of materials in July was 54,200 kg; and

(b) The nationally agreed wage rate increased to £6.60 per hour at the start of July.

Required

(a) Prepare a flexible budget in respect of Fixit Ltd for the month of July Year 7.

(b) Analyse and comment on cost variances.

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Budget Actual Units produced 5,000 5,500 Costs: Direct materials Direct labour Variable production overhead Fixed production overhead Depreciation 20,000 60,000 14,000 10,000 4,000 22,764 75,900 14,950 9,000 4,000