Orchid Ltd. is a small furniture manufacturer. It was established as a family-ow

Question

Orchid Ltd. is a small furniture manufacturer. It was established as a family-owned business 30 years ago and prides itself on high-quality products. Most of its products are made to order as a result of direct orders from Internet-based sales. Typically the company has been profitable, operating at the top end of the market; recently, however, costs appear to have been increasing and the company has also seen a decline in its sales. The workforce is highly skilled and recently several of the experienced craftspeople who make the products have retired, and the company has had problems recruiting, training and retaining suitably skilled employees. One of its products, a table, has the following standard costs:

The table is made from solid oak and the above materials reflect the size of the table in square metres. The labour required to make the table is highly skilled.

The monthly production and sales are planned to be 800 units. The actual results for March were as follows:

There were no opening or closing stocks. The company manufactured and sold 810 tables; this is more than budgeted due to a successful marketing campaign.

Required

1-Calculate the flexed and actual budget.

PLEASE EXPLAIN WHERE POSSIBLE. THANKS

£ Direct materials (8m @ £30/m) 240.00 Direct labour (10 hours @ £25/hr) 250.00 Fixed overheads 160.00 650.00 Selling price 950.00 Standard profit margin 300.00

Explanation / Answer

BUDGET

Variance

flexible with actual

Note : Figures in brackets shows adverese impact

Particulars Budgeted prices Actual Budget ( 800 units) Flexible Budget (810 units)

Variance

flexible with actual

Actual result ( 810 unit) Variance Actual with flexible Sales revenue 950 760,000 769,500 9,500 753,300 ( 16,200) Direct Material 30 X 8m= 240 192,000 194,400 (2,400) 192,500 1,900 Direct Labor 25 X 10hrs= 250 200,000 202,500 (2,500) 221,000 (18,500) Fixed Overhead 160 128,000 129,600 (1,600) 130,000 (400) operating profit 300 240,000 243,000 3,000 209,800 (33,200)

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