help with this nightmare exam past paper!!
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could somebody help me out with this paper, im having a nightmare!!
question
Sparrow & Co (accountants) prepared a budget for Eagle Ltd. for the year ended 31st May 2005. Shortly afterwards a revised budget was prepared to allow for a forecast change in demand.
Below are the original and revised budgets, along with actual results for the year.
Original Budget Revised Budget Actual
uniits £'000 units £'000 units £'000
Turnover 20,000 700 22,000 770 23,000 782
Material 160 176 225
Labour 300 330 350
Production Overhead 74 74 75
Cost of production 20,000 534 22,000 580 25,000 650
Less Closing stock nil nil nil nil 2,000 52
Cost of sales 20,000 534 22,000 580 23,000 598
Gross Profit 166 190 184
General Expenses 110 114 125
Operating Profit 56 76 59
Information:-
Changes in budgeted costs and revenues arose only due to forecast change in volume.
Both budgets assume no stocks (opening or closing).
Actual results have been prepared using absorption costing.
Closing stock valuation includes a proportion of overheads.
General expenses include £71,000 fixed costs (this is based on actual results).
Balance of general expenses are for selling and vary with units sold.
Actual unit cost of material and labour remain the same through the year.
Concerns are raised that the actual profit for the year is below that of the revised budget, and you are to prepare an analysis showing why the two profit figures are different.
Tasks
1. Calculate the following budget'd
Selling price per unit.
MAterial cost per unit.
Labour cost per unit.
Marginal cost of general expenses per unit.
Fixed cost of general expenses.
2. Identifty actual production fixed costs for the year.
3. Redraft the actual results for the year on a marginal costing basis.
4. Prepare a statement showing the following for the year:
Actual results on a marginal costing basis.
The appropriate flexible budget.
Any variances.
Data
After receiving your statement comparing actual marginal costing results with the flexible budget , Kate Smith (company MD) telles you that:
She does not understand why the budget in your statement is different from the agreed revised budget nor why some costs have changed but others stayed the same.
She does not understand why the actual results are different fromn the original actual results for the year to May 2005.
She is considering changing the bonus scheme currently payable to the general manager responsible for day to day operations. This year's bonus was based on sales volume to encourage sales. Next year she is planning to base the bonus on profits made, and the general manager has suggested it should be on absorption costing profit.
Tasks
Write a letter to Kate Smith:
1. Giving one reason why the budget in your statement from task 4 is different from the revised budget.
2. Explain why the actual results in your statement are different from the original actual results.
3. Discuss whether or not profit calculated using absorption costing rather than marginal costing is a better measure of management performance.
Many Thanks if somebody could help me with this.
Sebula.
question
Sparrow & Co (accountants) prepared a budget for Eagle Ltd. for the year ended 31st May 2005. Shortly afterwards a revised budget was prepared to allow for a forecast change in demand.
Below are the original and revised budgets, along with actual results for the year.
Original Budget Revised Budget Actual
uniits £'000 units £'000 units £'000
Turnover 20,000 700 22,000 770 23,000 782
Material 160 176 225
Labour 300 330 350
Production Overhead 74 74 75
Cost of production 20,000 534 22,000 580 25,000 650
Less Closing stock nil nil nil nil 2,000 52
Cost of sales 20,000 534 22,000 580 23,000 598
Gross Profit 166 190 184
General Expenses 110 114 125
Operating Profit 56 76 59
Information:-
Changes in budgeted costs and revenues arose only due to forecast change in volume.
Both budgets assume no stocks (opening or closing).
Actual results have been prepared using absorption costing.
Closing stock valuation includes a proportion of overheads.
General expenses include £71,000 fixed costs (this is based on actual results).
Balance of general expenses are for selling and vary with units sold.
Actual unit cost of material and labour remain the same through the year.
Concerns are raised that the actual profit for the year is below that of the revised budget, and you are to prepare an analysis showing why the two profit figures are different.
Tasks
1. Calculate the following budget'd
Selling price per unit.
MAterial cost per unit.
Labour cost per unit.
Marginal cost of general expenses per unit.
Fixed cost of general expenses.
2. Identifty actual production fixed costs for the year.
3. Redraft the actual results for the year on a marginal costing basis.
4. Prepare a statement showing the following for the year:
Actual results on a marginal costing basis.
The appropriate flexible budget.
Any variances.
Data
After receiving your statement comparing actual marginal costing results with the flexible budget , Kate Smith (company MD) telles you that:
She does not understand why the budget in your statement is different from the agreed revised budget nor why some costs have changed but others stayed the same.
She does not understand why the actual results are different fromn the original actual results for the year to May 2005.
She is considering changing the bonus scheme currently payable to the general manager responsible for day to day operations. This year's bonus was based on sales volume to encourage sales. Next year she is planning to base the bonus on profits made, and the general manager has suggested it should be on absorption costing profit.
Tasks
Write a letter to Kate Smith:
1. Giving one reason why the budget in your statement from task 4 is different from the revised budget.
2. Explain why the actual results in your statement are different from the original actual results.
3. Discuss whether or not profit calculated using absorption costing rather than marginal costing is a better measure of management performance.
Many Thanks if somebody could help me with this.
Sebula.
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