Class Assignment:

Budgeted cost and output for the previous two months have been as follows:

Month Nov2008 Dec2008

Budgeted Output(Units) 4,000 3,000

Budgeted Cost (000) 210 170

There is known to be a 'step up' of 50,000 in the fixed element of this cost for volumes in excess of 4,500 units.

Required:

1. Prepare a flexed budget for the appliances division for January 2009 and recalculate the budget variances.

2. Briefly discuss why flexible budgets are more effective than fixed budgets for the purpose of budgetary control.

Flexed Budgets: Francis plc is a manufacturing company. It assesses managerial performance by comparing actual with budgeted results. Due to staff shortages in the accounting department, gures for January 2009 budget reports have been prepared by a trainee. A copy of the budget report for January 2009 for the appliances division is given below: Budgeted Actual 1Infariance Sales 3.: production volumes {units} 5,000 5,500 500 F m-- _-- mm- Note: F = favourable variance, A = adverse variance. The manager of the appliances division does not believe that the variances calculated give a fair assessment of her division's performance. She thinks that the budget gures are inappropriate and that a flexed budget should be used to calculate the variances. To assist in preparing a flexed budget she provides the following information: I. Budgeted selling price is 200 per unit and actual selling price was 196. 2. Direct material is a variable cost. 3. Budgeted direct labour cost has a fixed element of 50,000 per month, the balance is variable. 4. Other manufacturing costs are semi-variable. Budgeted cost and output for the previous two months have been '3\"! Fnllnurc "