Question Tag: Budgeted profit

ABS Limited: Budgeted vs. Actual Profit Reconciliation Statement for June 2017

Variances:

1. Sales Price Variance:
   • Actual price per unit = GH¢11.00
   • Budgeted price per unit = GH¢10.00
   • Variance = (11.00 – 10.00) × 4,900 units = GH¢4,900 (Favorable)
2. Direct Material Price Variance:
   • Actual price per kg = GH¢0.60
   • Budgeted price per kg = GH¢0.50
   • Variance = (0.50 – 0.60) × 10,600 kg = GH¢1,060 (Adverse)
3. Direct Material Usage Variance:
   • Actual quantity = 10,600 kg
   • Budgeted quantity = 10,000 kg
   • Variance = (10,000 – 10,600) × GH¢0.50 = GH¢300 (Adverse)
4. Direct Labour Rate Variance:
   • Actual rate per hour = GH¢3.80
   • Budgeted rate per hour = GH¢4.00
   • Variance = (4.00 – 3.80) × 2,695 hours = GH¢539 (Favorable)
5. Direct Labour Efficiency Variance:
   • Actual hours per unit = 0.55 hours
   • Budgeted hours per unit = 0.50 hours
   • Variance = (0.50 – 0.55) × 4,900 units × GH¢4.00 = GH¢980 (Adverse)
6. Fixed Overhead Expenditure Variance:
   • Actual fixed production overhead = GH¢10,300
   • Budgeted fixed production overhead = GH¢10,000
   • Variance = GH¢300 (Adverse)
7. Fixed Overhead Volume Variance:
   • Actual production volume = 5,400 units
   • Budgeted production volume = 5,000 units
   • Variance = (5,400 – 5,000) × GH¢2.00 = GH¢800 (Favorable)
8. Fixed Administration Overhead Expenditure Variance:
   • Actual administration overhead = GH¢3,100
   • Budgeted administration overhead = GH¢3,000
   • Variance = GH¢100 (Adverse)

Total Variances:

• Favorable Variances Total: GH¢6,239
• Adverse Variances Total: GH¢2,740
• Net Variance: GH¢3,499 (Favorable)

Actual Profit:

• Budgeted Profit on Actual Sales: GH¢24,500
• Add: Net Favorable Variance: GH¢3,499
• Actual Profit: GH¢27,999

(15 marks)