Toscanini Ltd makes a standard product, which is budgeted to sell at £4.00 a unit, in a competitive market. It is made by taking a budgeted 0.4 kg of material, budgeted to cost

£2.40/kg, and having it worked on by hand by an employee, paid a budgeted £8.00/hour, for a budgeted 6 minutes. Monthly fixed overheads are budgeted at £4,800. The output for May was budgeted at 4,000 units.

The actual results for May were as follows:

No inventories of any description existed at the beginning or end of the month.
Required:

(a) Deduce the budgeted profit for May and reconcile it, through variances, with the actual profit in as much detail as the information provided will allow.

(b) State which manager should be held accountable, in the first instance, for each variance calculated.

(c) Assuming that the budget was well set and achievable, suggest at least one feasible reason for each of the variances that you identified in (a), given what you know about the business’s performance for May.

(d) If it were discovered that the actual total world market demand for the business’s product was 10 per cent lower than estimated when the May budget was set, explain how and why the variances that you identified in

(a) could be revised to provide information that would be potentially more useful.

Transcribed Image Text:

Sales revenue (3,500 units) Materials (1,425 kg) Labour (345 hours) Fixed overheads Actual operating profit 13,820 (3,420) (2,690) (4,900) 2,810