Trumpet Ltd is considering producing a new product to market overseas. It expects that it will be
Question:
Trumpet Ltd is considering producing a new product to market overseas. It expects that it will be able to sell the product for $400 per unit. The costs involved with the product are variable costs of $200 per unit and fixed costs of $1,500,000.
You have been provided with the following information on the expenses of Trumpet Ltd for the month of May 2020:
ACTUAL 100,000 units | BUDGET 80,000 units | |
Materials | 211,200 | 160,000 |
Direct labour | 158,000 | 128,000 |
Maintenance | 20,800 | 16,000 |
Glue, screws, nails | 10,000 | 8,000 |
Supplies | 38,000 | 32,000 |
Electricity | 31,000 | 24,000 |
Rent | 24,000 | 24,000 |
Salaries | 9,000 | 9,000 |
TOTAL | $502,000 | $401,000 |
You are required to:
(i) Prepare the performance report for the month of May 2020 using the flexible budget approach
(ii) Where there is an unfavourable variance give possible reasons and corrective action
