Singleton has been operating for some years as a manufacturer of a single product, and after several years’ growth has decided to form a company Singleton Ltd.

His accountant advised him that in an increasingly competitive world he really should achieve greater financial control of his business, and to assist Singleton in this objective the accountant prepared a simple manufacturing budget for the financial year ending 31 August 20X9.

The following schedule provides the detail of the budget and the actual results for the year ended 31 August 20X9. The actual results have been extracted from the ledger as at that date without any adjustments made.

Additional information:

1. At 31 August 20X9 the following amounts were still owing:

2. The factory rent paid covered the period from 1 September 20X8 to 30 November 20X9.

3. During the year the firm sold 90,000 units of its product at £4.50 a unit.

4. There was no work-in-progress. The stocks of finished goods were:

Required:

(a) What is variance analysis and how can it contribute to the operating efficiency of Singleton’s business?

(b) For the year ended 31 August 20X9 prepare:

(i) A manufacturing account and a schedule of the relevant variances;

(ii) A trading account.

(c) Write a report to advise Singleton whether the principles of budgeting can be applied to:

(i) Non-manufacturing costs;

(ii) The control of cash resources.

Your report should indicate in each case the potential benefits that the firm could achieve through extending its use of budgeting.

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Raw materials consumed Factory rent Factory maintenance expenses Heating and lighting Direct labour wages Direct expenses Depreciation of plant and machinery Wages, maintenance labour Other factory overheads Budget £ 80,000 10,000 6,700 2,900 120,000 5,800 8,900 18,000 12,700 Actual £ 90,000 12,500 6,100 3,000 110,500 6,000 10,500 24,000 9,600