QUESTION 3

Mowen Bhd produces a single product that requires a significant quantity of machine hours. This firm recently introduced flexible budgetary control system as an integral part of its corporate planning and its junior accounting staff has prepared the following budget for the month of July 2020:

Capacity80%100%

Machine hours 40,00050,000

RM RM

Utilities44,00055,000

Supplies 28,00035,000

Indirect labor 16,00020,000

Maintenance35,00042,500

Supervision 15,00015,000

Total Manufacturing Overhead Cost138,000 167,500

The firm assigns the manufacturing overhead costs to production on the basis of machine hours. During July 2020, the firm operated at 85% of machine hour capacity and the actual manufacturing overhead costs incurred during the month were as follows:

RM

Utilities45,900

Supplies25,500

Indirect labor 21,250

Maintenance 39,000

Supervision15,000

Total Manufacturing Overhead Cost 146,650

The maintenance costs are semi variable with a cost of RM 5,000 as fixed element. The actual fixed costs are remained as budgeted. The budgeted sales are 10,000 units (100% capacity level) but the actual sales have dropped to 8,500 units. The standard selling price is RM 24 per unit but the actual selling price is decreased by 2.5% to increase market share.

REQUIRED:

Prepare the Flexible Budget Report for July 2020 with the variances. Segregate the cost into variable and fixed cost by showing the contribution margin and net profit. Show all your calculations.