Prepare A Reconciliation Statement With Budgeted Profit And Actual Profit

Question

Alphasport Pic is a company which manufactures a range of sports products, including footballs designed for children. These football products require bladders, leather, packaging materials, and labour as direct inputs to the production of the product. Alphasport’s budget for the month of March 2010 was as follows:

Budget for March, 2010

Budget for March, 2010

 

£

£

£

Sales: (6,000 units @ £48 each)

6,000

48.00

 

288,000

Variable costs:

 

 

 

 

Bladders (6,000 units @ £3.00 each)

6,000

3.00

18.000

 

Leather (200 ten-hide bales @ £456)

200

456.00

91,200

 

Packing materials etc.

 

 

7,800

 

Direct labour (5,000 hours @ £6.00 ph)

5,000

6.00

30.000

 

Total variable costs

 

 

 

(147,000)

Fixed costs:

 

 

 

 

Administrative expenses

 

 

25,434

 

Salaries

 

 

49,566

 

Total fixed costs

 

 

 

(75,000)

 

 

 

 

 

Budgeted Net Profit

 

 

 

66,000

Due to an unexpected machine breakdown during March, Alphasport was only able to manufacture 60% of the budgeted production time (5,000 hours) and was unable to sanction any overtime, although the direct labour force was paid in full for the original budgeted hours. Actual costs and output during March were recorded as follows:

Actual for March, 2010

 

£

£

£

Sales (4000 units at £54 each)

4000

54.00

 

216,000

Variable costs:

 

 

 

 

Bladders (4000 units at £4.20 each)

4000

4.20

16,800

 

Leather (100 ten hide bales at £800 each)

100

800.00

80,000

 

Sundry and packaging materials

 

 

5,200

 

Direct labour (5000 hours at £6.50 per hour)

 

5000

6.50

32,500

 

Total Variable costs

 

 

 

134,500

Fixed Costs

 

 

 

 

Administrative expenses

 

 

26,310

 

Salaries

 

 

49,890

 

Total Fixed costs

 

 

 

76,200

Actual Net Profit

 

 

 

5,300

Required:

(a) (i). Prepare a statement reconciling the budgeted profit with the actual profit and state the variances in the way you consider would be most helpful to management.

(ii). Comment briefly on any apparent (i.e. plausible) inter-relationships between variances.

(b) Consider the following statement: “There are more comprehensive models of management control and performance measurement than variance analysis available now such as the balanced score card that tries to incorporate other methods of observing good management practice.”

With reference to the above statement, compare and contrast variance analysis and balanced scorecard approaches as management tools for cost control and performance evaluation.

Summary

The question belongs to Accounting and it discusses about preparing reconciliation statement with budgeted profit and actual profit and commenting about inter-relationships between variances.

Total Word Count 505

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