Question

Flexible budgets and variance analysis Question 1 Candy manufacturing produces boxes of candy that are sold all around Sydney stores. The company reveals the following budgetary information relating to its standard direct material and direct labour costs for a box of candy: Direct materials: $4 per kg 2 kg per box = 58 per box Direct labour: $20 per hour 15 minutes per box = $5 per box Management is concerned that staff may have worked sub-optimally in July, and have requested a flexible budget be constructed for that period. They inform you that 800 boxes were produced in the month. 300 boxes from last month were unsold and therefore already available for sale at the start of July, while 100 boxes were still unsold at the end of July. July's total sales revenue was $50,000. Management had expected to sell the boxes for $52 each. In July, direct labour staff had actually worked 230 hours and were paid $4,140. Also, 2700 kilograms of direct materials were purchased in July, for $10,000. The direct materials balance in the raw materials warehouse was 500 kilograms at the start of July, and 800 kilograms at the end of July. Required 1. Please construct a flexible budget for July, identifying the flexible budget numbers for sales revenue, direct materials and direct labour. 2. Please identify the direct materials and direct labour variances for July

Answer 1

1.

Particulars	Budgeted	Actual	Variance
Sales (in units)	1100	1000	-
Sales	57200	50000	7200 (U)
Direct Material	8800	9600	800 (U)
Labour	5500	4140	1360 (F)

2. Calculation of Material variance and labour variance-

Material Variance= 8800-9600= 800 (U)

Labour Variance= 5500-4140= 1360 (F)