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Requirements: Q1 (a) Prepare a statement that reconciles the budgeted gross profit for Active Now in 2020 (as per the static budget) to the actual gross profit earned in the year, showing sales and cost variances in as much detail as the information permits.

Requirements: Q1 (a) Prepare a statement that reconciles the budgeted gross profit for Active Now in 2020 (as per the static budget) to the actual gross profit earned in the year, showing sales and cost variances in as much detail as the information permits.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Requirements: Q1 (a) Prepare a statement that reconciles the budgeted gross profit for Active Now in 2020 (as per the static budget) to the actual gross profit earned in the year, showing sales and cost variances in as much detail as the information permits.
Transcribed Image Text:Requirements: Q1 (a) Prepare a statement that reconciles the budgeted gross profit for Active Now in 2020 (as per the static budget) to the actual gross profit earned in the year, showing sales and cost variances in as much detail as the information permits.
Active Now is an Irish company, owned and managed by partners Frances and Evelyn O'Connell, which manufactures specialised sporting equipment. Due to an expanding fitness market, Active Now has experienced considerable growth since it was formed less than three years ago. You have recently commenced work as a management accountant at Active Now and have proposed the introduction of variance analysis to improve the company's management control processes. However, Frances and Evelyn are unconvinced of the benefits of your proposal. They believe that Active Now is performing well and have provided you with the following report to demonstrate that the profit achieved in 2020 was higher than budgeted. 2020 Standard Static Actual per unit - € Results - Budget - € € Sales revenue 10.00 6,000,000 7,275,000 Manufacturing costs: Material: 0.10 kg @ €20 per kg Labour X: 0.1 dlh* @ €10 per dlh Labour Y: 0.05 dlh* @ €15 per dlh Variable overhead: 0.15 dlh* @ €12 per dlh Fixed overhead 2.00 1.00 0.75 1.80 2.45 1,200,000 600,000 450,000 1,080,000 1,470,000 1,552,500 783,750 627,000 1,485,000 1,500,000 Gross profit 2.00 1,200,000 1,326,750 * dlh = direct labour hours You examine Active Now's records for 2020 and establish that the actual sales volume was 25% higher than originally budgeted. Due to a change in supplier, the actual price paid for the materials used in production during the year was €23 per kilogram. With regard to both labour types, a lack of staff training resulted in a 10% increase in the actual time taken to produce each unit during the year. As per its policy, Active Now did not have any inventories at the beginning or end of 2020.
Transcribed Image Text:Active Now is an Irish company, owned and managed by partners Frances and Evelyn O'Connell, which manufactures specialised sporting equipment. Due to an expanding fitness market, Active Now has experienced considerable growth since it was formed less than three years ago. You have recently commenced work as a management accountant at Active Now and have proposed the introduction of variance analysis to improve the company's management control processes. However, Frances and Evelyn are unconvinced of the benefits of your proposal. They believe that Active Now is performing well and have provided you with the following report to demonstrate that the profit achieved in 2020 was higher than budgeted. 2020 Standard Static Actual per unit - € Results - Budget - € € Sales revenue 10.00 6,000,000 7,275,000 Manufacturing costs: Material: 0.10 kg @ €20 per kg Labour X: 0.1 dlh* @ €10 per dlh Labour Y: 0.05 dlh* @ €15 per dlh Variable overhead: 0.15 dlh* @ €12 per dlh Fixed overhead 2.00 1.00 0.75 1.80 2.45 1,200,000 600,000 450,000 1,080,000 1,470,000 1,552,500 783,750 627,000 1,485,000 1,500,000 Gross profit 2.00 1,200,000 1,326,750 * dlh = direct labour hours You examine Active Now's records for 2020 and establish that the actual sales volume was 25% higher than originally budgeted. Due to a change in supplier, the actual price paid for the materials used in production during the year was €23 per kilogram. With regard to both labour types, a lack of staff training resulted in a 10% increase in the actual time taken to produce each unit during the year. As per its policy, Active Now did not have any inventories at the beginning or end of 2020.
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