Question (Standard Costing)

Actual Results for June

Revenue Actual number of tests performed: 22 tests which were priced at 9,900 each.

Costs incurred:

Materials

Owing to the efficiency of operating staff, Autotechs wasted less material and only used 0.09 litres per procedure. This meant they only used 1.98 litres in total during June.There was an unexpected rise in material prices, so the procurement team actually spent 21,780 on materials (11,000 per litre).

Labour fees

The team worked a total of 47 hours and were paid a total of 75,400.

Overheads

Actual variable overheads cost in total 48,000 (1,021.28 per hour). Actual fixed overheads were 46,000.

Required:

(a) Prepare a flexed budget showing the profit based on the actual level of activity (22 tests). (8 marks)

(b) Calculate the actual profit made in June. (3 marks)

(c) Prepare a statement that reconciles the original budgeted profit for June with the actual profit for June. Your statement should show the variances in as much detail as possible. (21 marks)

(d) Discuss who should be rewarded/held responsible for any four variances that you calculated for the reconciliation in c) above. (8 marks)

KINDLY SHOW ALL CALCULATIONS AND TABLES IN ELECTRONIC (excel or word tables) FORM.

Autotechs LLP is an engineering performance enhancement specialist in the provision of a particular performance testing service for high-performance road cars. Autotechs seeks to provide a premium service aimed at discerning corporate users that require optimum performance from their executive cars. In order to do this, it hires teams of specialist staff on a sub-contract basis and pays for the hours that they have worked. The material they use in the process of the tests is associated with Formula 1 (racing) standards and thus it is very expensive. Variable overhead costs are attributed to the tests based on direct labour cost. Budget for June Budgeted number of tests to be performed: 20 tests Per test For 20 tests 10,000 200,000 Sales Revenue Less: Materials 0.1 litres @ 10,000 per litre Labour fee: 2 hours @ 1,500 per hour 1,000 20,000 3,000 60,000 Variable overheads 2 hours @ 975 per hour Contribution Less: Total fixed overheads for June Budgeted profit for June 1,950 4,050 39,000 81,000 48,000 33,000