investigate loss in the company despite good sales year. The budget for the previous year was as follows: Selling price per jumper - £70 Material to produce one jumper – 3 metres of wool at £7 per metre. Labour to produce one jumper – 2 hours at £15 per hour Variable overheads - £3 per direct labour hour. Fixed overheads budget was £15,000 The budget was to produce and sell 2,000 jumpers in the year. The actual information for the year is as follows: Production of jumpers totalled 3,000 units and all were sold for £216,000. Purchases of wool totalled 10,500 metres costing £84,000. A total of 7,500 hours of labour was worked, costing £112,500. Variable overheads totalled £30,000 and fixed overheads were £20,000. 1. Produce a detailed statement showing the differences in the profit/Loss of the original budget, flexed budget and the actual results
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
investigate loss in the company despite good sales year.
The budget for the previous year was as follows:
Selling price per jumper - £70
Material to produce one jumper – 3 metres of wool at £7 per metre.
Labour to produce one jumper – 2 hours at £15 per hour
Variable
Fixed overheads budget was £15,000
The budget was to produce and sell 2,000 jumpers in the year.
The actual information for the year is as follows:
Production of jumpers totalled 3,000 units and all were sold for £216,000.
Purchases of wool totalled 10,500 metres costing £84,000.
A total of 7,500 hours of labour was worked, costing £112,500.
Variable overheads totalled £30,000 and fixed overheads were £20,000.
1. Produce a detailed statement showing the differences in the
original budget, flexed budget and the actual results
1b. Calculate the direct materials, direct labour, variable overheads, fixed overheads
and sales variances using the information provided.
2. Produce a report to John Cush explaining reasons for the variances you have
calculated.
3.Identify and explain Three significant factors that you need to consider when
investigating variances as per the results in part 2
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