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 overheads: £31 000 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:Comment on your calculations (given down below). i. Sales Price Variance Actual Quantity x (Standard Selling Price – Actual Selling Price) = 2950 x (73-72) = 2950 (Favorable) ii. Sales profit – volume variance Standard profit per unit x (Actual units sold – Budgeted units sold) = (25575{working notes}/2950) x (2950 -3000) = 433 (Unfavorable) iii. Materials price variance: Actual quantity used x (Actual price - Standard price). Metal = (2950x0.9) x (14 - 13.8) = 531 (Favorable) Plastic = (2950x0.5) x (7 - 7.2) = 295 (Unfavorable) Total material price variance = 531-295 = 236 (Favorable)
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:Comment on your calculations (given down below).
i. Sales Price Variance
Actual Quantity x (Standard Selling Price – Actual Selling Price)
= 2950 x (73-72)
= 2950 (Favorable)
ii. Sales profit – volume variance
Standard profit per unit x (Actual units sold – Budgeted units sold)
= (25575{working notes}/2950) x (2950 -3000)
= 433 (Unfavorable)
iii. Materials price variance:
Actual quantity used x (Actual price - Standard price).
Metal
= (2950x0.9) x (14 - 13.8)
= 531 (Favorable)
Plastic
= (2950x0.5) x (7 - 7.2)
= 295 (Unfavorable)
Total material price variance
= 531-295
= 236 (Favorable)
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