Reference no: EM13501862

Question1

Consider the following statement: It is most sensible to start with the sales budget and develop the other budget from there. After what you have learned this week with regards to budget processes and procedures, analyse the validity of this statement. Do you agree with the statement? Justify your answer based on the week's readings. How should sales revenues be considered when determining other costs?

Question 2

A consulting firm produces a service that requires the use of labor and materials. Each unit of service requires a standard labor time of 30 minutes (0.5 hours). The average pay rate for a labor hour is £20. The consulting firm considers all materials that are required for the service as variable overheads (OH), the cost of which is directly associated with the labor hours worked. It has been estimated that variable OH rate is £10 per service hour.

The budgeted and actual costs, revenue and units for the month November are given in the table below:

	Original Budget	Actual
Units of Service	1,500	1,600
Sales Revenue	£120,000	£124,400
Labor hours	750	860
Labor cost	£15,000	£20,210
Variable OH costs	£7,500	£8,170
Fixed Cost	£68,000	£68,000
Total Cost	£90,500	£96,380
Operating Profit	£29,500	£28,020

1. Calculate the flexed budget and the key variances between budgeted and actual results.

2. Reconcile the original budget and present the relationship between the budgeted and the actual profit for the month November

3. Discuss the calculated variances, and provide suggestions for better cost management (target length 300 words).