Edinburgh Energy Services (EES) provides electrical plug testing services for large

corporate clients. In any month, the EES qualified electricians are budgeted to test

40,000 units spread evenly over the month. Each unit test is expected to take two

hours of an electrician's time. The company uses a flexed budget system to report its

actual results against budget in order to identify variances and take corrective action

where and when appropriate.

EES's budgeted charge to customers for each unit tested is 46 and it budgets to pay

its electrician testers 15 per hour. Each test uses 5 of materials (fuses, wire and

screws). All other costs of EES are fixed.

For the month of May, EES's actual figures for its sales revenue and electrician labour

costs were as follows:

Actual units tested: 38,500 units at an average of 43 each

Actual electrician labour cost: 78,000 hours at 14 per hour

What is the sales volume variance in ? (Show clearly all workings.)

2. What is the labour efficiency variance in ? (Show clearly all workings.)

3. Month to month, EES often incurs material price and material efficiency

variances, both favourable and unfavourable. If there was a scarcity of fuses,

wires and screws that drove up costs, what type of variance would that likely

lead to?

4. 'A flexed budget is used for control purposes and a fixed budget is used for

planning purposes'. Explain briefly the meaning of this statement.

5. In a stable organisation, where costs are not expected to vary significantly, state

whether an 'incremental' or a 'zero-based' method of budgeting would be more

suitable and explain why.