Bedford Ltd is a manufacturing business with several production departments. Benjamin Kent, the manager of the machining department, submitted the following figures for the firm’s annual budget for his department:

Benjamin is being criticised for overspending £33,150 compared with his normal budget. It is appreciated that he has made a saving on heating and lighting, but concern is being expressed over the spending on materials and labour. Benjamin feels that he has been able to control the department’s costs efficiently.

Required:

A. Construct a flexible budget for 60 per cent, 70 per cent, 75 per cent, 85 per cent and 90 per cent of production capacity, calculate any savings or overspending by Benjamin’s department and comment on its efficiency.

B. Describe the operation of an efficient system of budgetary control.

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Units produced (normal production level) Raw materials Direct labour Power Repairs and maintenance (25% variable at this level of budgeted cost) Insurance Heating and lighting Indirect wages (15% variable at this level of budgeted cost) Total cost Total capacity for machining department Actual production for the period is 68,000 units, and costs are: Materials Labour Power Repairs and maintenance Insurance Heating and lighting Indirect wages Total cost 64,000 £ 294,400 236,800 38,400 51,200 1,300 1,250 64,000 687,350 80,000 units 310,750 249,100 39,800 53,050 1,350 1,200 65,250 720,500