Explain the importance of budgeting for control

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Reference no: EM133344244

Question 1

Corporate reports are generally entangled with various types of opportunistic behaviour. Drawing on relevant academic literature, critically discuss the differences between earnings management and impression management and their usefulness in corporate reporting.

Question 2

Ellie designs, makes and sells wedding dresses. She sells two types of wedding dress: Classic and Designer. Ellie allocates production overheads using an overhead absorption rate, based on labour hours. Selling prices are set based on cost plus a 40 per cent mark-up. The following information is provided for May:

Classic	Designer
Direct materials (£ per unit)	50	60
Direct labour (£ per hour)	10	10
Direct labour hours	1,000	3,000
Budget production/sales (units)	40	20
Total production overheads	£75000

Requirement

(a) Calculate the overhead absorption rate based on labour hours. 8 Marks

(b) Calculate the full cost to produce both Classic and Designer in May. 6 Marks

(d) Explain the difference between direct and indirect costs. 2 Marks

Question 3

Bil Ltd is a company that produces car accessories. The following information is relevant for production in March:

Budget

Selling price (£ per unit)	80
Direct labour (£ per hour)	10
Direct labour hours (per unit)	2
Direct materials (£ per unit)	12
Production overhead (£)	1,400
Budget production/sales (units)	50

Continued over page

Actual Results £

Sales revenue 4300

Direct labour 900

Direct materials 700

Production overhead 1,300

Actual profit 1,400

Actual results are based on 60 units sold.

Requirement

(a) Using variance analysis, reconcile budgeted profit to actual profit for Bil Ltd for March.

(b) Explain the importance of budgeting for control.

Reference no: EM133344244

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