Question2

The following are the budgeted and the actual results for the month of April 2021 of Tommy Limited.

Budgeted results Actual results

Production and sales volume 25,000 units 28,500 units

Selling price per unit $120.0 $115.0

Cost information:

Direct materials per unit (variable) $27.0 $24.3

Direct labour per unit (variable) $16.0 $19.0

Production overhead (semi-variable) $285,000.0 $330,000

Sales commission expense per unit (variable) $12.0 $13.2

Administration overhead (fixed) $367,000.0 $382,000.0

Additional information relating to the budgeted results is as follows: (i) To encourage more sales, a 5% discount on selling price will be given when the sales volume reaches 27,500 units.

(ii) The company can enjoy a 10% bulk purchase discount on all the material costs when the production volume exceeds 27,000 units.

(iii) It is estimated that when the production volume increases to 29,000 units, the production overhead will amount $325,000.

(iv) As an incentive to the salesmen, an extra sales commission of 10% per unit will be given to all the sales if the sales volume exceeds 28,000 units.

Required:

a) Prepare a flexible budget for 28,500 units and 29,000 units. (13 marks)

b) Prepare a budgetary control statement (performance report) for 28,500 units, (12 marks)

showing the columns:

(i) flexible budget,

(ii) actual results

(iii) variances

(Total 25 marks)