Question

Antonio plc makes product X, the standard costs of which are: Sales revenue 31 Direct labour (2 hours) (11) Direct materials (1 kg) (10) Fixed overheads (3) Standard profit The budgeted output for March was 1.000 units of product X; the actual output was 1.100 units, which was sold for €34.950. There were no inventories at the start or end of March. The actual production costs were: € Direct labour (2.150 hours) 12.210 Direct materials (1.170 kg) 11.630 Fixed overheads 3.200 Required: Calculate the variances for March as fully as you are able from the available information, and use them to reconcile the budgeted and actual profit figures.

That is the question with its answer. Can someone please explain what is going on here. What is the concept of this question exactly? How is the flexed budget calculated in this question

Answer 1

Whenever you are required to compare the performance of a company, we should the figures not directly that is the actual figures should not be compared with the budgeted instead, the budgeted figures should be flexed in according to the actual output so that the comparison will hold good. This is because the variation between budgeted and actual output varies because of unusual reasons which are out of the scope of comparision.

And the calculation is as simple as that, everything given in the question for 1000 units should be converted to 1100 units by dividing the same with 1000 and multiplying the remainder with 1100. But when comes to fixed costs they cannot be flexed because they will however remain the same even of the output is 0.

Question is answered as per the requirement what student is asking.