Calculate the flexed budget and the key variances

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Reference no: EM13874330

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).

 

 

Reference no: EM13874330

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