Accounting Ppt

Chapter 11 Case Study revised

Flexible budgeting/standard costing illustration

Boatbitz Pty Ltd, a company based in Coffs Harbour, produces a single machined part used extensively in boat building and repairs. To date the company has not thought it necessary to use sophisticated costing methods, but much fiercer competition is changing this attitude. A system of flexible budgeting has been developed which effectively provides a standard cost for the product, as shown below.

| $ | $ | $ |

Selling price | | | 200 |

Less costs | | | |

Extrusions—10 kilograms @ $5 per kilogram | | (50) | |

Wages—3 hours @ $20 per hour | | (60) | |

Overheads | | | |

Variable costs | (10) | | |

Fixed costs (average) | (20) | | |

| | (30) | |

| | | (140) |

Standard profit | | | 60 |

These figures are based on a budget of 1,000 parts in every four weeks (20 days). Products are broadly made to order so you can assume that minimal inventory is held.

During February a summarised income statement shows the following:

| $ | $ | $ |

Sales | | | 176,000 |

Less costs | | | |

Materials—8,100 kilograms @ $6 per kilogram | | (48,600) | |

Labour | | (63,800) | |

Overheads | | | |

Variable costs | (11,000) | | |

Fixed costs | (22,500) | | |

| | (33,500) | |

| | | (145,900) |

Actual profit | | | 30,100 |

The following additional information is available:

1. Selling price was increased by 10%.

2. An Australia-wide strike called by the national union, to support a pay rise for all workers in the industry, lasted for five days. The result of the stoppage was an increase in the hourly rate of pay to $22, backdated to the start of February.

3. Actual hours included some overtime to make up for some of the time lost in the strike, but the rate was only at the new rate of $22 per hour....