Answer Happy

Question 4
HappyLiving Ltd (HP Ltd) is a manufacturer specialising in
producing hand
crafted ceramic table lamps for a local market.
The process is labour intensive. HP Ltd currently use a standard
cost card
system. The standard cost card for the first quarter of 2022 is
shown below:
Budgeted quantity 8,000
£
Total revenue from sales 1,200,000
Clay (20,000kg @ £1.80 per kg) (£36,000)
Labour (48,000 hours @ £19 per hour) (£912,000)
Fixed overheads (160,000)
Standard profit 92,000
The actual results relating to the first quarter are disappointing.
The profit at the
end of the first quarter 2022 was a £68,530 instead of the budgeted
profit of
£92,000.
The actual results showed that 8,500 lamps had been sold with
revenue for the
period being £1,249,500. To produce this quantity of lamps,
22,100kgs of clay
were purchased at a cost of £40,885. The labour cost was £977,585
and workers
were paid £18.55 per hour. Actual labour hour per unit was 6.2
hours. The fixed
overheads incurred were £162,500.
Required:
a) Prepare a columnar budget statement showing the original budget,
the
flexed budget, the actual results, and variances for the first
quarter 2022.
(6 marks)
b) Calculate the following variances:
i) Sales price and volume variance
ii) Materials price and usage variance
iii) Labour rate and efficiency variance
iv) Fixed overhead expenditure
(8 marks)
c) Discuss in detail the importance of budgeting as a technique in
management
accounting.
(6 marks)