Preparation of flexible budgets A manufacturing company has the following budgeted costs for one month which are based on a normal capacity level of 40000 hours.

A departmental overhead absorption rate of

£4.40 per hour has been calculated, as follows:

During the month of April, the company actually worked 36000 hours producing 36000 standard hours of production and incurred the following overhead costs:

You are required to:

(a) prepare a statement showing for April the flexible budget for the month, the actual costs and the variance for each overhead item;

(b) comment on each variance of £1000 or more by suggesting possible reasons for the variances reported;

(c) state, for control purposes, with reasons to support your conclusions:
(i) whether

(b) above is adequate; and (ii) whether the statement prepared in respect of the request in

(a) above could be improved, and if so, how.

Transcribed Image Text:

Overhead: Management and supervision Shift premium National Insurance and pension costs Variable Fixed per hour (000) () 30 - -- 0.10 6 0.22 260 0.25 0.18 0.20 4 12 Inspection Consumable supplies Power for machinery Lighting and heating Rates Repairs and maintenance Materials and handling Depreciation of machinery Production administration Overhead rate per hour: Variable Fixed - 0.15 0.30 - 1.40 3.00 Total 4.40