HappyLiving Ltd (HP Ltd) is a manufacturer specializing in producing hand-crafted ceramic table lamps for a local
Question:
HappyLiving Ltd (HP Ltd) is a manufacturer specializing in producing hand-crafted ceramic table lamps for a local market.
The process is labor-intensive. HP Ltd currently uses a standard cost card system. The standard cost card for the first quarter of 2022 is shown below:
Budgeted quantity | 8,000 |
£ | |
Total revenue from sales | 1,200,000 |
Clay (20,000kg @ £1.80 per kg) | (£36,000) |
Labour (48,000 hours @ £19 per hour) | (£912,000) |
Fixed overheads | (160,000) |
Standard profit | 92,000 |
The actual results relating to the first quarter are disappointing. The profit at the end of the first quarter of 2022 was a £68,530 instead of the budgeted profit of £92,000.
The actual results showed that 8,500 lamps had been sold with revenue for the period being £1,249,500. To produce this quantity of lamps, 22,100kgs of clay were purchased at a cost of £40,885. The labor cost was £977,585 and workers were paid £18.55 per hour. The actual labor hour per unit was 6.2 hours. The fixed overheads incurred were £162,500.
Required:
Prepare a columnar budget statement showing the original budget, the flexed budget, the actual results, and variances for the first quarter of 2022.
Calculate the following variances:
Sales price and volume variance
Materials price and usage variance
Labour rate and efficiency variance
Fixed overhead expenditure
Discuss in detail the importance of budgeting as a technique in management accounting.
Financial Accounting An Introduction to Concepts, Methods and Uses
ISBN: 978-1133591023
14th edition
Authors: Roman L. Weil, Katherine Schipper, Jennifer Francis