The monthly budget of Plastics Ltd, manufacturers of specialist containers, was prepared on the following specification: Production
Question:
The monthly budget of Plastics Ltd, manufacturers of specialist containers, was prepared on the following specification:
Production and sales ........................................ 30,000 units
Selling price ....................................................... £70 per unit
Direct materials input ...................................... 5 kg per unit at a cost of £1.20 per kg
Direct labour input ........................................... 2 hours per unit at a rate of £4 per hour
Variable overhead ............................................ £2 per direct labour hour
Fixed overhead ................................................. £90,000 per month
The following actual results were recorded for the month of May Year 8:
Stock of finished goods at start of month ........................ 8,000 units
Sales ...................................................................................... 40,000 units
Production ........................................................................... 42,800 units
Stock of finished goods at end of month ........................ 10,800 units
Actual costs incurred were:
£
Direct material ....................................... 267,220 (213,776 kg at £1.25 per kg)
Direct labour .......................................... 356,577
Variable overhead ................................. 165,243
Fixed overhead ....................................... 95,000
Further information
(a) Throughout May the price paid for direct materials was £1.25 per kg. Direct material is used as soon as it arrives on site. No stocks of materials were held at the start or end of May.
(b) The labor rate paid throughout the month was £4.10 per hour.
(c) The selling price of finished goods was £70 per unit throughout the month.
(d) Stocks of finished goods are valued at standard cost of production.
Required
(a) Calculate the budgeted profit for May Year 8, based on the actual sales volume achieved.
(b) Calculate the cost variances for the month of May.
(c) Explain how cost variances may be used to identify responsibility for cost control within the company.
Step by Step Answer:
Financial And Management Accounting An Introduction
ISBN: 9781292244419
8th Edition
Authors: Pauline Weetman