Flexible budgets and computation of labour and material variances

(a) JB ple operates a standard marginal cost accounting system. Information relating to product J, which is made in one of the company departments, is given below:

Budgeted fixed production overhead, per month: £100000.
Budgeted production for product J: 20000 units per month.
Actual production and costs for month 6 were as follows:

You are required to:
(i) prepare a columnar statement showing, by element of cost, the:
(i) original budget;
(ii) flexed budget;
(iii) actual;
(iv) total variances; (9 marks)
(ii) subdivide the variances for direct material and direct labour shown in your answer to

(a) (i)-(iv) above to be more informative for managerial purposes.
(4 marks)

(b) Explain the meaning and use of a ‘rolling forecast’. (2 marks)
(Total 15 marks)

Transcribed Image Text:

Product J Direct material 6 kilograms at 4 per kg Direct labour 1 hour at 7 per hour Variable production overhead a Standard marginal product cost Unit () 24 7 3 3 34