repare a statement that reconciles the budgeted and actual profit/loss for december, showing the variances in as much detail as possible form the information provided.
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.
Zizi plc uses a standard absorption costing system and produces and sells product 8W. The standard cost card is below:
Product 8W (€ per unit)
Direct material (5 per kg) 15
Direct labour (6 per hour) 12
Fixed manufacturing
Total production cost 37
Standard profit 13
Standard selling price 50
* Absorption rate based on standard labour hours
Budgeted and actual production and sales units for december 2020 were as follows:
Budget Actual
Production 1,100 900
Sales 1,000 800
Actual data for December 2020 were as follows
|
€ |
||
|
Direct material purchases |
1,200 kgs costing |
12,000 |
|
Direct materials used |
1,100 kgs |
|
|
Direct labour hours |
500 hours costing |
6,000 |
|
Fixed manufacturing overhead |
5,000 |
|
|
Sales revenue |
30,000 |
An analysis of the Direct labour hours shows that the 500 hours that were paid for 50 were idle time due to a machinery breakdown. There were no inventories of Direct materials or finished products (planned or actual) at the start of the month.
Required:
i) the
-
Direct material price variance 6,000 Adverse
-
Direct material usage variance 8,000 Favourable
-
Actual profit is 11,200
Prepare a statement that reconciles the budgeted and actual
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