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Bay Cleaning Ltd produce a standard industrial cleaning material which is sold in 5 litre
drums. Bay’s managing director has provided the operating statement for the last 12
months together with the original budget.Bay Cleaning Ltd operating statement – year ended 31 December 20X3
Budget Actual
Production and sales volume (drums) 100,000 120,000
Sales 500,000 630,000
Variable costs:
Materials 210,000 264,000
Labour 75,000 94,000
Semi-variable costs:
Power 70,000 83,500
Water 15,000 17,500
Other overheads 12,000 12,500
Fixed costs:
Production 35,000 40,000
Administration 27,500 30,000
Selling and distribution 30,000 31,000
Operating profit 25,500 57,500Additional information:
• The budgeted fixed element of power was $10,000.
• The budgeted fixed element of water was $5,000.
• The budgeted fixed element of other overheads was $10,000.
• All other costs are either fixed or vary in direct proportion with the level of activity
• There was no opening or closing inventory of finished goods.Complete the table to show Bay’s actual results for the period compared with the
flexible budgetary allowance for the actual level of activity and detail all the relevant
variancesI am sorry, but I cannot possibly go through and provide you with a full answer!!
Surely you have an answer in whichever book you found the question, so if you ask any specific problems you have with the answer then I will try and help.
There are full lectures on variance analysis on this website (there are lectures on the whole of the F2 syllabus) – if you watch them (with the free lecture notes in front of you) then you should lille problem with this question.
Please help me find out which is the logic for the answer for the flexed budget for power, water and other variables, because I can’t figure it out how they get there. The answers are:
Power= 82000
Water= 17000
Other overheads=12400.
Thanks!They are all semi-variable costs (part fixed and part variable).
If you have not watched the free lectures on this then you should (our lectures are a complete course for Paper F2).Since the fixed cost for power is 10,000, the total variable cost for production of 100,000 units must be 70,000 – 10,000 = 60,000.
Therefore the variable cost per unit is 60,000/100,000 = 0.60.So for 120,000 units, the total variable cost should be 120,000 x 0.60 = 72,000. In addition there is the fixed cost of 10,000. This gives a total cost of 82,000.
It is exactly the same approach for the other two semi-variable costs 🙂
Again, I really do suggest that you watch our free lectures!
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