Assignment task 1: TopTree Ltd produces and sells a single product, the Oak. The original budget for the company was to produce and sell 50,000 units in the year ended 31st March 2023.
For the year ended 31st March 2023 the company struggled due to economic uncertainties and the political instability and therefore only produced and sold 45,000 units.
Year Ended 31st March 2023
Original Budget Actual Results Variance
Volume (units) 50,000 45,000 5,000 Adv
£ £ £
Sales 950,000 850,000 100,000 Adv
Costs:
Materials 200,000 170,000 20,000 Fav
Labour 100,000 180,000 40,000 Adv
Maintenance 220,000 210,000 10,000 Fav
Equipment Hire 15,000 15,000 NIL
Depreciation 25,000 28,000 3,000 Adv
Rates & Insurance 35,000 39,000 4,000 Adv
Profit 355,000 208,000 147,000 Adv
Additional information:
- Material and labour are variable costs.
- Maintenance is a semi-variable cost; you are informed that when the volume reduces to 40,000 the semi-variable cost will reduce to £190,000.
- Equipment hire is a for a power tool which has a capacity of producing 8,000 units for the year, i.e. a stepped cost.
- All other costs are fixed.
Requirements:
A. Using the information provided can u give me a flexible budget statement for 45,000 units for the year ended 31st March 2023 and compare it with the actual results, showing all variances.
B. Briefly discuss why flexible budgets are more effective than fixed budgets for the purpose of budgetary control.
C. Identify and briefly discuss three reasons, other than budgetary control, why companies prepare budgets.
Assignment task 2: Sunset Bass Ltd. specializes in selling brass saxophones. Established in 1990, the company has a strong presence in the global market, catering to musicians of various genres, including jazz, classical, and contemporary music. Sunset Bass imports saxophones from reputable manufacturers worldwide and distributes them to dealers internationally.
Sunset Bass currently offers two saxophone models: the Harmony and the Melody. The Harmony is designed for beginner and intermediate players, while the Melody is a premium model preferred by professional saxophonists.
The expected selling prices, costs per unit and sales volume for next year are:
Harmony Melody
Selling price to dealers £700 £1,500
Cost of saxophones (from manufacturer) £300 £700
Packing & distribution costs £70 £60
Sales volume 800 400
Other fixed costs for the upcoming year are as follows:
General Administration £70,000
Finance £100,000
Managing Director's salary £75,000
Sales staff salary £45,000
Advertising costs £110,000
Required:
A. Calculate the contribution from each product, the total contribution, and the total expected profit for next year.
B. If the selling price of the Melody saxophone is increased by 10%, its sales volume is expected to decrease by 10%. In addition, the sales volume of the Harmony is projected to increase by 5% as some buyers are expected to switch to the Harmony saxophone.
The Marketing Manager has proposed that Sunset Bass Ltd. expand its business by offering saxophone repair services in addition to selling saxophones to dealers. The Marketing Manager provided the following estimates for the first year of this new service:
Harmony Melody
Price for repair services £100 £200
Cost of repair materials £30 £50
Sales Volume 240 95
The additional fixed costs for the repair services are estimated at £25,000.
The existing sales staff will continue to sell saxophones to dealers and are not impacted with the new repair services.
Required:
i. Calculate the additional profit which this proposal will generate.
ii. Consider both the positive and negative effects of this proposal and briefly comment on the non-financial effects of proceeding with this proposal.