Problem:
Calculation of actual input data working back from variances
The following profit reconciliation statement has been prepared by the management accountant of ABC Limited for March:
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(£)
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Budgeted profit
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30000
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Sales volume profit variance
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5250A
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Selling price variance
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6375F
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31125
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Cost variances:
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A
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F
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(£)
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(£)
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Material:
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Price
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1985
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usage
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400
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Labour:
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Rate
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9800
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Efficiency
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4000
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Variable overhead:
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Expenditure
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1000
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Efficiency
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1500
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Fixed overhead:
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Expenditure
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500
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Volume
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24500
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31985
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11700
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20285A
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Actual profit
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10840
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The standard cost card for the company's only product is as follows:
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(£)
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Materials
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5 litres at £0.20
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1.00
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Labour
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4 hours at £4.00
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16.00
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Variable overhead
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4 hours at £1.50
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6.00
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Fixed overhead
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4 hours at £3.50
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14.00
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37.00
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Standard profit
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3.00
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Standard selling price
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40.00
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The following information is also available:
1. There was no change in the level of finished goods stock during the month.
2. Budgeted production and sales volumes for March were equal.
3. Stocks of materials, which are valued at standard price, decreased by 800 litres during the month.
4. The actual labour rate was £0.28 lower than the standard hourly rate.
Required:
(a) Calculate the following:
(i) the actual production/sales volume;
(ii) the actual number of hours worked;
(iii) the actual quantity of materials purchased;
(iv) the actual variable overhead cost incurred;
(v) the actual fixed overhead cost incurred.
(b) ABC Limited uses a standard costing system whereas other organizations use a system of budgetary control. Explain the reasons why a system of budgetary control is often preferred to the use of standard costing in non- manufacturing environments.