Budgeting for control – seminar questionsQuestion 1- Standard cost per unitK Ltd manufactures Product 20K. Information relating to this product is given below.Budgeted output for the year: 900 unitsStandard details for one unit:Direct materials: 40 square metres at $5.30 per square metreDirect wages: Bonding department 24 hours at $5.00 per hourFinishing department 15 hours at $4.80 per hourBudgeted costs and hours per annum are as follows:$ HoursVariable overheadBonding department 45,000 30,000Finishing department 25,000 25,000Fixed overhead apportioned to this product:Production $36,000Selling, distribution and administration $27,000Note: Variable overheads are recovered (absorbed) using hours, fixed overheads are recovered on a unit basis.Required:Prepare a standard cost card in order to establish the standard cost of one unit of Product 20K and enter the following subtotals on the card:(1) prime cost(2) marginal cost(3) total absorption cost(4) total standard cost.Answer:Category Item Quantity Price CostQuestion 2 – Flexed budgetEngines Incorporated, a small engineering company, has the following results for April 2006 for its product, the Widget. It budgeted to sell 12,500 widgets at £9 each. However, 16,000 widgets were actually sold at £8.80 each. The budgeted and actual costs are given below: Budget ActualNumber of widgets 12,500 16,000£ £Price per widget 9.00 8.80——- ——-Direct material 40,000 42,000Labour cost 32,000 29,000Variable overheads 6,000 8,000Fixed overheads 8,000 10,000Required:(i) Calculate the flexed budget(ii) Calculate the sales price and sales quantity variance(iii) Calculate the overall cost variances for materials, labour, variable overheads and fixed overheads(iv) Discuss the variances. In particular, highlight what extra information might be needed for a more detailed investigation.AnswerStandard costs for flexed budget:Part (i to iii)Sales quantity variance: (standard quantity – actual quantity) x standard contribution per unitSales price variance: (standard price – actual price) x actual quantity
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