QUESTION ABOUT BUDGETING

Part I: Flexed Budget

Daniliuc Ltd is based in North Habour and produces a singled machined part used extensively in boat building and repairs. At the start of the business, the owners have not thought much about using sophisticated costs methods. With increased competition more recently, the business has considered employing a system of flexible budgeting to effectively provide a better understanding of their budgets and variances.

These figures are based on a budget of 1,000 parts in a month. Products are broadly made to order so you can assume that minimal inventory is held.

	$	$
Selling price per unit		200
Less: Costs
Raw materials - 10kgs @ $5.50 per kg	55
Wages 3.5hours @ $20 per hour	70
Salaries	19
Insurance	10
Total Costs		153
Budgeted Profit		46

During the month of June 2020, a summarised income statement shows the following:

	$	$
Sales revenue		176,000
Less: Costs
Raw materials - 8,100kgs @ $6 per kg	48,600
Wages	63,800
Salaries	22,500
Insurance	11,000
Total Costs		145,900
Actual Profit		30,100

Additional information:

• Actual selling price for the machined part was increased by 10%.
• Wages costs for the month of June used the new rate of $22 per hour.

Required

a. Prepare a flexed budget and a variance analysis for Daniliuc Ltd for the month of June 2020, using the table below. Show all workings.

	Actual	Flexed	Variance
Units	800
Sales Revenue	176,000
Less: Costs
Raw materials - 10kgs @ $5.50 per kg	48,600
Wages - 3.5hours @ $20 per hour	63,800
Salaries	22,500
Insurance	11,000
Total Costs	145,900
Profit	30,100

Show workings here:

b. For each of the variances identified in part a) above, provide a reason to explain each variance.

Part II: Cash Budgets

Cash budget is a key budget as it reflects most economic aspects of a business, and for some businesses, it reflects their whole business.

Byrnes Limited has prepared a cash budget for the year and has encountered significant cash deficit. They have approached you for advice on how to address a cash deficit. You are required to identify and explain two ways that Byrnes may employ to address cash deficits in their budget.