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Budgets and variances Assignment

Budgets and variances Assignment

Budgets and variances Assignment

For this Individual Case Study Assignment, you will provide possible explanations for the variances that you have calculated and suggestions as to how the company might try to improve its cost control.

Orchid Ltd. is a small furniture manufacturer. It was established as a family-owned business 30 years ago and prides itself on high-quality products.

Most of its products are made to order as a result of direct orders from internet-based sales. Typically, the company has been profitable, operating at the top end of the market; recently, however, costs appear to have been increasing and the company has also seen a decline in its sales.

The workforce is highly skilled and recently several of the experienced craftspeople who make the products have retired, and the company has had problems recruiting, training and retaining suitably skilled employees.

One of its products, a table, has the following standard costs:



Direct materials (8m @  £30/m) 


Direct labour (10 hours @ £25/hr) 


Fixed overheads




Selling price


Standard profit margin


The table is made from solid oak and the above materials reflect the size of the table in square metres. The labour required to make the table is highly skilled.

The monthly production and sales are planned to be 800 units. The actual results for March were as follows:




Sales revenue







Direct materials



Direct labour


(8500 hours)

Fixed overheads



Operating profit



There were no opening or closing stocks. The company manufactured and sold 810 tables; this is more than budgeted due to a successful marketing campaign.

To complete this Individual Case Study Assignment:

Parts 1 and 2 should be submitted as an operating statement, as per your Key Concept Overview, and within the business report as required for part 3.

  1. Calculate the flexed and actual budget.
  2. Calculate the following variances:
  • Sales variances; volume and price
  • Direct material variances; usage and price
  • Direct labour variances; efficiency and rate
  • Fixed overhead variance; spending
  1. Present the above information as a part of a business report, providing possible explanations for the variances that you have calculated and suggestions as to how the company might try to improve its cost control.

This Individual Case Study Assignment should be around 1,000 words for the main body of your business report.

Examples of calculations. 

Budgeting example Cabsat installs broadband cable and satellite receiving equipment in houses. The manufacturer supplies kits containing all the materials required for fitting. It is expected that Cabsat will buy all of the kits for the same unit price, although occasionally extra kits need to be purchased if items are lost or damaged. All kits are budgeted to take the same time to fit, and customers are charged a fixed price, usually £126, for an installation. The actual results, original budget and unit standard costs for the month of June 2015 are set out below. This is one of the busiest months of the year, and Cabsat expected to be working at normal full capacity, completing 500 installations. The standard costs have been computed on this basis, with overheads allocated on standard labour hours. Cabsat: Standard Unit Cost for Each Installation.

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