a. i) Produce a budget statement for Caltex for November ii) Produce a profit statement for Caltex for November b. Produce a flexed budget statement for Caltex for November
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Caltex Products plc manufactures electric mini-lawnmowers. Its sales and costs’
budget for November 20X2 is as follows:
Sales: 3 000 units × £72/unit
Costs:
Direct materials (metal): 3 000 units × (1kg per unit × £14/kg)
Direct materials (plastic) 3 000 units × (0.5kg per unit × £7/kg)
Direct labour: 3 000 units × (0.75 hours per unit × £8/hr)
Production overhead £86 500
Other
• The company does not absorb production overheads using an
overhead absorption rate.
• It may be assumed that all of its overheads are fixed in nature.
The company’s actual results for the same month (November) are as follows:
Sales: 2 950 units × £73/unit
Costs:
Direct materials (metal): 2 950 units × (0.9kg per unit × £13.80/kg)
Direct materials (plastic): 2 950 units × (£0.5kg per unit × £7.20/unit)
Direct labour: 2 950 units × (0.7 hrs per unit × £8.20/hr)
Production overhead: £84 250
Other overheads: £32 250
Net profit: £34 658
Required:
a.
i) Produce a budget statement for Caltex for November
ii) Produce a profit statement for Caltex for November
b.
Produce a flexed budget statement for Caltex for November
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Caltex Products plc manufactures electric mini-lawnmowers. Its sales and costs’
budget for November 20X2 is as follows:
Sales: 3 000 units × £72/unit
Costs:
Direct materials (metal): 3 000 units × (1kg per unit × £14/kg)
Direct materials (plastic) 3 000 units × (0.5kg per unit × £7/kg)
Direct labour: 3 000 units × (0.75 hours per unit × £8/hr)
Production overhead £86 500
Other
• The company does not absorb production overheads using an
overhead absorption rate.
• It may be assumed that all of its overheads are fixed in nature.
The company’s actual results for the same month (November) are as follows:
Sales: 2 950 units × £73/unit
Costs:
Direct materials (metal): 2 950 units × (0.9kg per unit × £13.80/kg)
Direct materials (plastic): 2 950 units × (£0.5kg per unit × £7.20/unit)
Direct labour: 2 950 units × (0.7 hrs per unit × £8.20/hr)
Production overhead: £84 250
Other overheads: £32 250
Net profit: £34 658
Calculate:
i) Sales price variance
ii) Sales profit – volume variance
iii) Materials price variance (both materials)
iv) Labour rate variance
v) Labour efficiency variance
vi) Overhead variances (both)
d. Comment on your calculations produced in c above.
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