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the following budgeted figures have been taken from the cost records of MZ ltd: production units 10 000 12...

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Finance

the following budgeted figures have been taken from the costrecords of MZ ltd:
production units 10 000 12 500
capacity level 80% 100%
sales R1 144 000 R1 430 000
direct material @R5 per KG R200 000 R250 000
direct labour @R20 per hour R240 000 R300 000
factory overheads R300 000 R330 000
selling and administrative expenses R180 000 R190 000
normal capacity is equal to 12 500 units. As a result of pooreconomic conditions the budget for July 2019 has been set at 80%ofnormal capacity
the company uses the direct costing method for internalreporting purposes the following variance report for July 2019 hasbeen presented to management
fixed budget actual budget variance
production units 10 000 9000
material usage (kg) 10 000 9000
labour hours 12 000 11 500
sales R1 144 000 R1 003 200 R140 800 (a)
material R200 000 R188 000 R12 000 (f)
direct labour R240 000 R224 000 R16 000 (f)
factory overhead R300 000 R296 000 R4 000 (f)
selling and administrative expenses R180 000 R176 000 R4 000 (f)
net profit R224 000 R119 000 R104 800 (a)
(A) prepare an alternative variance report for the departmentthat would be more meaningful to management
(B) critically discuss the format and content of the variancereport for July 2019 a represented to the department

Answer & Explanation Solved by verified expert

4.5 Ratings (765 Votes)

a]	A more meaningful report would be a comparison for fixed budget with flexible budget to find the activity variances
	and a comparison of the flexible budget with the actuals to give the revenue and spending variances.
		Fixed Budget	Activity Variance	Flexible Budget	Revenue/Spending Variance	Actuals
	Production in units	10000			9000			9000
	Material usage [kg]	10000			9000			9000
	Labor hours	12000			10800			11500
	Sales	$Â Â Â 11,44,000	$Â Â Â Â Â Â 1,14,400	U	1029600	26400	U	1003200
	Variable expenses:					`
	Material	$Â Â Â Â Â Â 2,00,000	$Â Â Â Â Â Â Â Â Â Â 20,000	F	180000	8000	U	188000
	Direct labor	$Â Â Â Â Â Â 2,40,000	$Â Â Â Â Â Â Â Â Â Â 24,000	F	216000	8000	U	224000
	Total variable expenses	$Â Â Â Â Â Â 4,40,000	$Â Â Â Â Â Â Â Â Â Â 44,000	F	396000	16000	U	412000
	Contribution margin	$Â Â Â Â Â Â 7,04,000	$Â Â Â Â Â Â Â Â Â Â 70,400	U	633600	42400	U	591200
	Fixed expenses:
	Factory overhead	$Â Â Â Â Â Â 3,00,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -Â Â	N	300000	4000	F	296000
	Selling and administrative expenses	$Â Â Â Â Â Â 1,80,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -Â Â	N	180000	4000	F	176000
	Total fixed expenses	$Â Â Â Â Â Â 4,80,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -Â Â	N	480000	8000	F	472000
	Net profit	$Â Â Â Â Â Â 2,24,000	$Â Â Â Â Â Â Â Â Â Â 70,400	U	153600	34400	U	119200
b]	The performance has been unsatisfactory as the revenue/spending variances are all unfavorable, except for the fixed
	expenses variances which are favorable.

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