Contract Production Ltd is evaluating the performance of product ATP6 to determine if its product manager,...

 

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Contract Production Ltd is evaluating the performance of product ATP6 to determine if its product manager, Sundram has met his performance targets for the year. The budget data relating to sales/production levels of 12,000 units for 2015 are shown below: Sales price $72.00 per unit Variable costs: Manufacturing $36.00 per unit Administrative $9.00 per unit Selling $3.00 per unit Fixed costs: $18.00 per unit Manufacturing Administrative $3.00 per unit Sundram's performance targets are (1) to meet the budgeted sales units for 2015 with a unit profit margin of 5%; and (2) ensure that costs variances do not exceed 5% of budgeted amounts. The actual sales figure for 2015 was $989,100 for 13,800 units of product ATP6 sold. All actual fixed costs were equal to budgeted amounts. The total actual variable manufacturing, administrative and selling costs were $495,600, $125,000 and $42,300 respectively. Required: (a) Prepare a flexible budget report that includes the variance for each revenue/cost item for product ATP6 for 2015. Label your variance as favourable (F) or unfavourable (U) where appropriate (b) Do you think Sundram has performed well in 2015? Explain. (c) Comment if your answer in part (b) would be different if you knew that Sundram participated in the budgeting exercise and had a significant influence on the setting of his performance targets for 2015? Explain. (d) Does a manager like Sundram, have total control over all revenue and costs? Discuss. Contract Production Ltd is evaluating the performance of product ATP6 to determine if its product manager, Sundram has met his performance targets for the year. The budget data relating to sales/production levels of 12,000 units for 2015 are shown below: Sales price $72.00 per unit Variable costs: Manufacturing $36.00 per unit Administrative $9.00 per unit Selling $3.00 per unit Fixed costs: $18.00 per unit Manufacturing Administrative $3.00 per unit Sundram's performance targets are (1) to meet the budgeted sales units for 2015 with a unit profit margin of 5%; and (2) ensure that costs variances do not exceed 5% of budgeted amounts. The actual sales figure for 2015 was $989,100 for 13,800 units of product ATP6 sold. All actual fixed costs were equal to budgeted amounts. The total actual variable manufacturing, administrative and selling costs were $495,600, $125,000 and $42,300 respectively. Required: (a) Prepare a flexible budget report that includes the variance for each revenue/cost item for product ATP6 for 2015. Label your variance as favourable (F) or unfavourable (U) where appropriate (b) Do you think Sundram has performed well in 2015? Explain. (c) Comment if your answer in part (b) would be different if you knew that Sundram participated in the budgeting exercise and had a significant influence on the setting of his performance targets for 2015? Explain. (d) Does a manager like Sundram, have total control over all revenue and costs? Discuss.

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a Statement showing Variance in Actual Budgeted Particulars Actual Budget Variance L... View the full answer