White Cold Equipment (WCE) makes refrigeration equipment for the domestic market. It sells all its production wholesale to a large retail chain. WCE's budget versus actual report for a recent month was as in Table 17.21.

Management was concerned about the significant shortfall in profits of £8,550 and asked the finance director for more information. The finance director produced a revised report (Table 17.22) based on a flexible budget.

The above repott showed that by adjusting the budget to the actual volume of production/sales, the profit was £2,950 higher than expected. The finance director also produced a variance analysis (Table 17.23).

This showed that the gross margin was lower than expected for the 1,000 units actually produced by £3,550, but that selling and administration expenses were below budget by £6,500. Therefore, profits were higher than expected for the 1,000 units actually produced.
On receipt of the finance director's report, comments were sought from the operational executives.

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Table 17.21 White Cold Equipment plc. Budget vs actual report Sales units Price Actual Budget Variance 1,000 1,050 -50 700 700 Revenue 700,000 735,000 -35,000 Cost of production Materials per unit Materials cost 250 Materials consumed 245,700 262,500 16,800 Labour per unit 150 Labour consumed Labour cost 152,250 157,500 5,250 Manufacturing overhead per unit 70 Manufacturing overhead cost 75,600 73,500 -2,100 Total manufacturing cost 473,550 493,500 19,950 Gross margin 226,450 241,500 -15,050 Selling and admin expense 183,500 190,000 6,500 Net operating profit 42,950 51,500 -8,550