Reference no: EM133164379

Question - Mokoena has had problems in the past because of a lack of budgetary control. There were always big discrepancies between the budgeted results and the actual results. You have been employed as a management accountant at Mokoena Ltd. since the beginning of the year. This will be your first presentation to management. You have discussed the concepts of budgetary control with your boss and informed him that flexible budgets should be prepared to compare the actual and budgeted results. After further enquiries from your boss, you informed him that the main reason to prepare flexible budgets is that different costs react differently when a change in the budgeted and actual production units occur. The following budgeted information, at different production levels, is available:

	8 000 products	12 000 products
Direct material	R22 500	R33 750
Indirect material	R6 750	R9 750
Direct labour	R60 000	R90 000
Indirect labour	R18 000	R25 500
Depreciation	R12 300	R12 300
Property taxes	R1 125	R1 125
Electricity	R14 250	R21 375
Production overheads	R8 475	R12 225

Mokoena produced 11 300 units during 2017. The following actual costs were incurred during this period:

	11 300 products
Direct material	R31 950
Indirect material	R8 400
Direct labour	R80 625
Indirect labour	R22 800
Depreciation	R12 300
Property taxes	R1 230
Electricity	R16 800
Production overheads	R11 100

Required -

1. Determine whether the behaviour of each of the budgeted cost items are either fixed, variable or mixed.

2. Determine the variable cost per unit and the total fixed cost for the cost item/(s) identified in 6.1 as amixed cost. Use the high-low method.

3. Prepare a flexible budget at 11 300 units and determine all the variances at this level.