Tallent plc manufactures a single type of computer printer. Activity levels in the assembly department vary from month to month. Val has calculated variances and is pleased with what they show.
Assembly department’s overhead budget for the four weeks in
November
Cost Budgeted Actual Variance fav/(adv)
£ £ £ £
Indirect
labour (variable) 4 000 3 908 92
Consumables
(variable) 160 200 (40)
Other
variable overheads 840 732 108
Depreciation
(fixed) 2 000 2 000 –
Other
fixed overheads 1
000 1
000 –
8 000 7 840 160
Printers
assembled 4 000 3 500
Using the table below, prepare a flexible budget for the November four-week period based on the assembly of 3 500 units in the department, showing appropriate variances. [8]
|
Cost
|
Budget
£
|
Actual
£
|
Variance
fav/(adv)
£
|
|
Indirect Labour (Variable)
|
3500
|
3908
|
(408)
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
2000
|
2000
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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What you do:
1. Identify the variable costs.
2. Divide each individual variable cost by the fixed budget level of output.
So....Indirect Labour (£4000) divided by 4000 printers equals £1.00
3. Multiply this amount by the flexible budget level of output (3500 printers) to give £3500.
Indirect Labour has been added to the table above.
4. Fixed costs remain the same. Depreciation has been added to the table.
Can you complete the rest of the table?
Brompton Bikes set a monthly static expenditure budget based
on the production of 2000 bikes
|
|
Budget
|
Actual for February 2017
|
Variance
|
|
Rent
|
£1,500
|
£1,500
|
|
|
Business Rates
|
£750
|
£750
|
|
|
Hourly Paid Labour
|
£6,000
|
£7,200
|
|
|
Direct Materials Cost
|
£10,000
|
£13,000
|
|
|
Salaries
|
£5,000
|
£5,000
|
|
|
Bikes Produced
|
|
2500
|
|
Why would the variance calculations not be an accurate
reflection of expenditure for the month?
Prepare a flexible budget based on the production of 2500
bikes.
