The Kemp Company manufacture a range of musical instruments. They are concerned that they are not...
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The Kemp Company manufacture a range of musical instruments. They are concerned that they are not performing as well as they could be, but they are unsure where the issues are. The accounts have been produced, as follows, for their low-price violins: Number of violins sold Sales Cost of sales (all variable) Materials Labour Overheads Total cost of sales Fixed Labour Cost Selling & distribution costs Fixed Variable Administration Costs Fixed Variable Net Profit Budget 500 £15,000.00 £17,550.00 £2,500.00 £2,925.00 £6,000.00 £8,450.00 £1,000.00 £1,950.00 £9,500.00 £13,325.00 £900.00 Actual 650 £75.00 £250.00 £150.00 £100.00 £1,475.00 £4,025.00 £850.00 £70.00 £292.50 £176.00 £162.50 £1,551.00 £2,674.00 a) Using a flexible budget approach produce a statement that shows a more useful comparison, than the table above, and include a column for variances. Discuss what information these variances have provided. Comment on potential reasons (other than inflation) as to why these have occurred. b) The two directors of Kemp Ltd, Martin and Gary, feel that the budgeting process is a waste of time as the numbers are not accurate. The budgeting process takes up a lot of management time and the results are always the same as last year plus an inflation adjustment. Discuss their concern and mention other issues that can arise from the budgeting process. Include in your discussion a suggestion of an alternative approach. The Kemp Company manufacture a range of musical instruments. They are concerned that they are not performing as well as they could be, but they are unsure where the issues are. The accounts have been produced, as follows, for their low-price violins: Number of violins sold Sales Cost of sales (all variable) Materials Labour Overheads Total cost of sales Fixed Labour Cost Selling & distribution costs Fixed Variable Administration Costs Fixed Variable Net Profit Budget 500 £15,000.00 £17,550.00 £2,500.00 £2,925.00 £6,000.00 £8,450.00 £1,000.00 £1,950.00 £9,500.00 £13,325.00 £900.00 Actual 650 £75.00 £250.00 £150.00 £100.00 £1,475.00 £4,025.00 £850.00 £70.00 £292.50 £176.00 £162.50 £1,551.00 £2,674.00 a) Using a flexible budget approach produce a statement that shows a more useful comparison, than the table above, and include a column for variances. Discuss what information these variances have provided. Comment on potential reasons (other than inflation) as to why these have occurred. b) The two directors of Kemp Ltd, Martin and Gary, feel that the budgeting process is a waste of time as the numbers are not accurate. The budgeting process takes up a lot of management time and the results are always the same as last year plus an inflation adjustment. Discuss their concern and mention other issues that can arise from the budgeting process. Include in your discussion a suggestion of an alternative approach.
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Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg
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