Dillinger Thompson Limited does not absorb production overheads using an overhead absorption rate. It may be assumed that all of its overheads are fixed in nature.

CHAPTER 18 STANDARD COSTING, FLEXIBLE BUDGETING AND VARIANCE ANALYSIS 523 If the company flexes its budget for 3600 units, what will be the revised net profit figure?

a) £11 760

b) £17 760

c) £14160

d) £7 600.

The following information is relevant for questions 18.5 to 18.10.

Edwards and Sheerness Limited is in the motor parts industry. Its budget for July 20X2 is as follows:

£

Sales: 2 500 units x £29.00 72 500 Costs Direct materials: 2 500 x (3 kg x £3.00) (22 500)

Direct labour: 2 500 x (1.5 hours x £4.40) (16 500)

Production overhead (17 000)

16 500 Other overheads (3 500)

Net profit 13 000 Edwards and Sheerness Limited does not absorb production overheads using an overhead absorption rate. It may be assumed that all of its overheads are fixed in nature.

The company's actual results for the month are as follows:

£

Sales: 2 650 units x £28.00 74 200 Costs Direct materials: 2 650 x (2.8 kg x £3.30)

(24486)

Direct labour: 2 650 x (1.7 hours x £4.20)

(18921)

Production overhead

(16 900)

Other overheads 13 893 (3 600)

Net profit 10 293