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  • Lecture Practical Flexible Budget Preparation

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    Muhammad Istiyansyah Idris
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    The engineering company produced its first quarterly performance report, which showed actual sales were higher than the static budget but production was lower. The external accountant valued inventory using budgeted costs per unit rather than actual costs, which impacted reported profit. To better reflect actual performance, a flexed budget is needed that adjusts for the higher sales volume.

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    The engineering company produced its first quarterly performance report, which showed actual sales were higher than the static budget but production was lower. The external accountant valued inventory using budgeted costs per unit rather than actual costs, which impacted reported profit. To better reflect actual performance, a flexed budget is needed that adjusts for the higher sales volume.

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    21 views1 page

    Lecture Practical Flexible Budget Preparation

    Uploaded by

    Muhammad Istiyansyah Idris
    The engineering company produced its first quarterly performance report, which showed actual sales were higher than the static budget but production was lower. The external accountant valued inventory using budgeted costs per unit rather than actual costs, which impacted reported profit. To better reflect actual performance, a flexed budget is needed that adjusts for the higher sales volume.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    Q: Flexible budgets preparation

    A newly formed engineering company has just completed its first three months
    of trading. The company manufactures only one type of product. The external
    accountant for the company has produced the following statement to present
    at a meeting to review performance for the first quarter.

    Performance report for the quarter ending 31 October:


    Static Budget Actual Variance
    Sales units 12,000 13,000 1000
    Production units 14,000 13,500 (500)
    £000 £000 £000
    £000 £000
    Sales revenue 360 385 25
    Direct materials 70 69 1
    Direct labour 140 132 8
    Variable production 42 43 (1)
    overhead
    Fixed production overhead 84 85 (1)
    Inventory adjustment (48) (12) (36)
    Cost of sales 288 317 (29)
    Gross profit 72 68 (4)

    The external accountant has stated that he values inventory at the budgeted
    total production cost per unit.

    Required:
    Produce an amended statement for the quarter ending 31 Oct. that is based on
    a flexed budget. Compute and comment on the variances.

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