Question

pls answer questions (a to c) i will vote you positive . thank you

Assignment 09ACT4105HD - Assignment !! - Deadline: 21 Sep 2020 Email Assignment to "[email protected]" (in "ONE" pdf file including "Declaration of Student's Own Work") Adams Co manufactures one product whose output level varies from month to month. No inventory is held. Budgets for its minimum and maximum monthly output levels are given below, together with actual figures for November 2009. Cost Budgeted Budgeted Actual Classification minimum maximum Output 20,000 units 40,000 units 35,000 units $ $ $ Sales revenue 400,000 800,000 735,000 Less: Direct materials variable cost 240,000 480,000 430,000 Direct labour variable cost 50,000 100,000 80,000 Indirect labour semi-variable cost 15,000 25,000 31,000 Indirect materials fixed cost 6,000 6,000 6,500 Profit 89,000 189,000 187,500 Required: (a) Prepare a flexed budget for an output level of 35,000 units. (b) Calculate revenue, cost and profit variances for November 2009 using the actual figures given and the flexed budget you have prepared. (c) Explain the meaning of the terms fixed budget and flexible budget and the importance of basing variance calculations on flexible budgeting principles.

Answer 1

Requirement A

Flexible budget

Out put units	35000
Sales revenue ( 20 * 35000 )	$700000
Less:
Direct materials (12 * 35000 )	$420000
Direct labor ( 2.5 * 35000 )	87500
Indirect labor (5000 + 0.50 * 20000)	22500
Indirect materials	6000
Profit	$164000

Flexible Budget = Budgeted * Actual out put units @ 35000

Budgeted sales price = 800000 / 40000 = 20

Budgeted Direct materials per units = 480000 / 40000 = 12

Direct labor = 100000 / 40000 = 2.5

Indirect labor:- for indirect labor firs we need to calculate variable portion and fixed portion, because it is semi variable cost.

Under high low method

Variable cost per units budgeted = ( Cost @ highest output budgeted - Cost @ lowest output budgeted ) / ( Highest output budgeted - Lowest output budgeted )

Variable cost per units budgeted = ( 25000 - 15000 ) / ( 40000 - 20000 )

Variable cost per units budgeted = 10000 / 20000 = 0.50

Fixed cost total = Total cost at output level - Variable cost per units budgeted * correspondent output level

Fixed cost total = 25000 - 0.50 * 40000 = 25000 - 20000 = 5000

Flexible budget indirect labor cost = 5000 + 0.50 * 35000 = 22500

* Fixed cost are same in budgeted and flexible budget.

Requirement B

	Actual	Flexible Budget variance	Flexible
Out put units	35000		35000
Sales revenue	$735000	35000 Favorable	$700000
Less:
Direct materials	$430000	10000 Unfavorable	$420000
Direct labor	80000	7500 Favorable	87500
Indirect labor	31000	8500 Unfavorable	22500
Indirect materials	6500	500 Unfavorable	6000
Profit	$187500	23500 Favorable	$164000

Revenue variance = 35000 Favorable

Total cost variance -= 10000 U + 7500 F + 8500 U + 500 U = 11500 Unfavorable

Profit variance = 23500 favorable

Requirement C

Fixed budget is not flexible and does not change with the actual volume of output achieved. it assumes that criteria would remain static.

It is prepare for one level of sales volume.

Flexible budget is prepare to change according to changed conditions. In flexible budget is prepare for according to several possible output level in relevant range. It actually prepare with actual sales volume.

Importance of flexible budget variance

> The first important is The management can compare actual costs at the actual volume with the budgeted costs at the actual volume.

> these variance can utilize for actual control of cost.

> A flexible budget helps a business to see more variances than a fixed budget.