Question 1

(25 Marks)

REQUIRED

Use the information provided below to prepare the following for June 2020:

1.1. Flexible budget for TWO (2) different activity levels i.e. 20 000 and 25 000 units (9 marks)

1.2. Performance report (11 marks)

1.3. Comment on the following variances:

1.3.1. Sales (1 marks)

1.3.2. Direct Material (2 marks)

1.3.3. Fixed overheads (2 marks)

INFORMATION

Magna Ltd manufactures a single product. It originally planned to produce and sell 16 000 units during June but the actual activity level was 18 000 units. The budgeted and actual income and cost for June are as follows:

Original Budget Actual

Volume 16 000 units 18 000 units

R R

Sales 1 920 000 2 340 000

Cost of sales (1 651 200) (2 044 000)

Direct Materials 800 000 1 008 000

Direct labour 560 000 702 000

Variable overheads 192 000 162 000

Fixed overheads 99 200 172 000

Gross Profit 268 800 296 000