c. The budget production statement in (a) above is based on the marginal costing system. Describe a market situation where it is appropriate for planned costs to be set and monitored on (i) a marginal costing basis and (ii) an absorption costing basis.

Question: W Read through the information below and answer the questio... W Read through the information below and answer the questions that follow. Realta Plc is a manufacturer of electrical components which has contracts to supply several major engineering contractors. The company's objectives include the aim of operating profitably overall, although the directors accept that results of individual products will vary according to the competitiveness of markets. Targets are therefore set for each individual product and market. Realta operates twelve monthly budget periods for management control purposes. Set out below is a part of the master budget for Product NR12 for Period 10. This budget is based on normal annual operating capacity of 6,000 units evenly distributed over the year. Product NR12 was introduced eighteen months ago and the sales director is exploring new markets for its sale. Budget for Period 10: Product NR12 Per unit Total Selling price 100.00 Direct materials @ 2.50 per kg 4 kg Machine time 30 minutes Direct labour @ 15.00 per hour 120 minutes Manufacturing overhead: variable with machine hours 2.00 Manufacturing overhead: fixed absorbed per unit of output 15,000 During Period 10 actual production and sales of NR12 totalled 520 units and the cost ledger summary shows: Results for Period 10: Product NR12 Sales 520 units 51,800 Direct materials 3,010 kg used 5,300 Direct labour 1,080 hours paid for 15,600 Manufacturing overhead: variable 1,100 Manufacturing overhead: fixed 15.900 Total manufacturing costs incurred 37,900 Net income 13,900 Machines used recorded 290 hours on Product NR12 in Period 10. a. Prepare an overall budget production statement that shows both the original and the flexible budget for Product NR12 for Period 10. (Your performance report should be in a very similar format to Table 3.6 in Unit 2 Session 3. The only difference is to add a new column (a) at the beginning of the table which shows standard selling price, standard cost per unit (for each variable cost), standard contribution per unit, standard fixed cost per unit and standard profit per unit.) (23 marks) b. In terms of management control, explain the benefit to Realta in using the standard cost information asked for in (a) above. (3 marks) c. The budget production statement in (a) above is based on the marginal costing system. Describe a market situation where it is appropriate for planned costs to be set and monitored on (i) a marginal costing basis and (ii) an absorption costing basis. (6 marks) d. Using absorption costing, what is the fixed overhead volume variance for Product NR12 in Period 10? Why is this variance relevant to absorption costing but not to marginal costing? (5 marks) Total Question 2: 37 marks Show transcribed image text Expert Answer Question: W Read through the information below and answer the questio... W Read through the information below and answer the questions that follow. Realta Plc is a manufacturer of electrical components which has contracts to supply several major engineering contractors. The company's objectives include the aim of operating profitably overall, although the directors accept that results of individual products will vary according to the competitiveness of markets. Targets are therefore set for each individual product and market. Realta operates twelve monthly budget periods for management control purposes. Set out below is a part of the master budget for Product NR12 for Period 10. This budget is based on normal annual operating capacity of 6,000 units evenly distributed over the year. Product NR12 was introduced eighteen months ago and the sales director is exploring new markets for its sale. Budget for Period 10: Product NR12 Per unit Total Selling price 100.00 Direct materials @ 2.50 per kg 4 kg Machine time 30 minutes Direct labour @ 15.00 per hour 120 minutes Manufacturing overhead: variable with machine hours 2.00 Manufacturing overhead: fixed absorbed per unit of output 15,000 During Period 10 actual production and sales of NR12 totalled 520 units and the cost ledger summary shows: Results for Period 10: Product NR12 Sales 520 units 51,800 Direct materials 3,010 kg used 5,300 Direct labour 1,080 hours paid for 15,600 Manufacturing overhead: variable 1,100 Manufacturing overhead: fixed 15.900 Total manufacturing costs incurred 37,900 Net income 13,900 Machines used recorded 290 hours on Product NR12 in Period 10. a. Prepare an overall budget production statement that shows both the original and the flexible budget for Product NR12 for Period 10. (Your performance report should be in a very similar format to Table 3.6 in Unit 2 Session 3. The only difference is to add a new column (a) at the beginning of the table which shows standard selling price, standard cost per unit (for each variable cost), standard contribution per unit, standard fixed cost per unit and standard profit per unit.) (23 marks) b. In terms of management control, explain the benefit to Realta in using the standard cost information asked for in (a) above. (3 marks) c. The budget production statement in (a) above is based on the marginal costing system. Describe a market situation where it is appropriate for planned costs to be set and monitored on (i) a marginal costing basis and (ii) an absorption costing basis. (6 marks) d. Using absorption costing, what is the fixed overhead volume variance for Product NR12 in Period 10? Why is this variance relevant to absorption costing but not to marginal costing? (5 marks) Total Question 2: 37 marks Show transcribed image text Expert