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- Operating Statement

2- Actual Budget

3-Flexed Budget

£ 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

Requirement 1:

Operating Statement:

Particulars

Amount

Sales

753300

Less:

Direct Materials

192500

Direct Labor

221000

Fixed Overheads

130000

543500

Operating Profit

209800

Requirement 2:

Actual Budget:

Particulars

Calculation

Amount

Sales

950 * 800

760000

Less:

Direct Materials

240 * 800

192000

Direct Labor

250 * 800

200000

Fixed Overheads

160 * 800

128000

520000

Operating Profit

240000

Requirement 3:

Flexible Budget:

Particulars

Calculation

Amount

Sales

950 * 810

769500

Less:

Direct Materials

30 * 7000

210000

Direct Labor

25 * 8500

212500

Fixed Overheads

160 * 800

128000

550500

Operating Profit

219000

Particulars

Amount

Sales

753300

Less:

Direct Materials

192500

Direct Labor

221000

Fixed Overheads

130000

543500

Operating Profit

209800

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