Preparing Financial Forecasts Report Essay

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HND program, Sichuan University 2006-12-21

Part A
Introduction
This report refers to show the variances between the Flexed Budget and Actual results. After cooperation, we will understand the overview of the organization’s current situation. In order to find the problems and solve them, I analyzed them below. Here are the detailed information about the materials variance, labour variance and overhead variance.
In addition, I will give out the advice of my opinion at the end of this report.
|Tricol plc Flexible budget |
| |Original budget |Flexed budget |Actual results |Variance |
| | | | |A/F |
| |2000 units |1600 units |1600 units[1] | |
|Direct material |￡80000[2] |￡64000[5] |￡61600 |￡2400 |F |
|Direct labor |￡36000[3] |￡28800[6] |￡35200 |￡（6400） |A |
|Variable production overheads |￡4000[4] |￡3200[7] |￡3200 |0 | |
| |Depreciation |￡1500 | |￡1500 | |
|Fixed overheads | | | | | |
|Total cost of production | |￡104200 |￡108600 |￡（4400） |A |

[1] Flexed budget amount is 80% of the target amount
[2]￡10×4 kg×2,000＝80,000
[3]￡9×2×2,000＝36,000
[4]￡2×2,000＝4,000
[5]￡10×4 kg×1,600＝64,000
[6]￡9×2×1,600＝28,800
[7]￡2×1,600＝3,200
Material:
Direct material total variance = (standard units of actual production*standard price)-(actual quantity*actual price) = (1600*4*10) - 61600 =￡2400(F)

Direct material usage variance =standard price*(standard unit of actual production - actual quality) =10*(1600*4-5600) =￡8000(F)

Direct material price variance =actual quantity*(standard price – actual price) =5600*(10-11) =￡-5600(A)
Material total Variance percentage = 2400/64000 *100% =3.75%
Material usage variance percentage = 8000/64000*100% =12.5%
Material price variance percentage =5600/64000*100% =8.75%

Labour:
Direct labour total variance = (standard hours of actual production*standard rate ph)-(actual hours*actual rate ph) = (1600*2*9)-35200 =￡-6400(A)

Direct labour efficiency variance =standard rate ph*(standard hours of actual production – actual hours) =9*(1600*2-3520) =￡-2880(A)
Direct labour rate variance =actual hours*(standard rate ph-actual rate ph) =3520*(9-10) =￡-3520(A)
Labour total variance percentage =6400/28800*100%=22.22%
Labour efficiency variance percentage =2880/28800*100%=10%
Labour rate variance percentage=3520/28800*100% =12.22%

Overhead:

Total overhead variance =total standard overhead for actual production-total actual overheads = (7.125*1600)-(3200+2200+1500+2400+2500) =11400-11800 =￡-400(A)

Overhead absorption rate =total budgeted overhead/total budgeted activity level = (1600*2+2000+2200+1500+2500)/1600 =￡7.125 per unit
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