Intermediate : Preparation of a flexible budget A manufacturing company has the following budgeted costs for one month which are based on a normal capacity level of 40 000 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 36 000 hours producing 36000 standard hours of production and incurred the follo wing 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; (14 marks)

(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;

(d) calculate:
(i) the overhead absorbed:
(ii) the total amount under/over spent;
(iii) the overhead volume vanance.

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Fixed Variable per hour (2000) () Overhead: Management and supervision 30 Shift premium 0.10 National Insurance and pension costs 6 0.22 Inspection 20 0.25