June 08 - Q1 (Variances & Operating Statement)

SShunmas15y ago

Hello !

In June 08 Q1, the requirement is to reconcile the budgeted profit and actual profit using marginal costing approach.

My questions are:
(1) is it necessary to prepare a full budgeted profit statement because clearly if we multiply budgeted units (8400) with budgeted contribution per unit, we get budgeted contribution and then we can subtract budgeted fixed cost to arrive at budgeted profit OR WILL WE HAVE TO PREPARE IN FULL (ALSO SHOWING BUDGETED MAT, LABOUR...etc cost ????

(2) the examiner has broken down the operating statement into three columns. viz., Adverse, Favourable and Total....CAN WE MAKE IT IN A SINGLE COLUMN ???

Thanks

((deleted)15y ago#1

1. Yes open operating statement, this is practical way of presenting reconciliation to management and with this, it clearly show each variances so that management can make proper decision regarding to investigate the variances or not. Remember this is a practical paper and your approach must be practical (actually used), by the way budgeted contribution + budgeted fixed cost = budgeted profit, not subtract :)
2. Again this can clearly show each variances, whether it is favourable or adverse, think if you are the manager and your employee present you with a single column and when there is adverse variances, they minus, this is messy and will not help you to make decision faster (because you need to recheck and it will take up more time). If you can present operating statement according to the format of examiner (which is practical), then you are ready for this type of question and also ready to present variances report to your manager next time.