Financial Decision Making


Financial Decision MakingBudgeting and Performance Management

Financial Decision Making
Subject or discipline: Finance
Title: Financial Decision Making
Number of sources: 3
Provide digital sources used: No
Paper format: Other: Harvard referencing style
# of pages: 3
Spacing: Double spaced
# of words: 825
Paper details:
PLEASE LABEL EACH OF THE QUESTION AT THE FRONT
Required
Q1. Prepare an expense budget for the Department based on 
budgeted production.

ANSWER
Q2. Prepare a flexible budget for the department based on actual 
production

ANSWER
Q3. Use the flexible budget to calculate variances from actual results 
for the month.

ANSWER
Q4. Identify the variances that the department manager would need 
to investigate and provide reasons for your choices.

ANSWER
Q5. Suggest possible causes for those variances.
ANSWER

Financial Decision MakingBudgeting and Performance Management

Wow Windows Ltd produces housing windows. It operates a number of departments. Your task involves one department (metal stamping) that produces three parts. The company has a detailed budgeting process which involves flexible budgeting. Responsibility accounting is used as part of the budgeting process. Detailed reports by department are prepared each month, and managers are responsible for explaining variances.

The department produces three products – a Basic Frame, Triple window Frame and a Dual Slide Window Frame. Only one raw material is used – metal sheets. The output of the department is measured in direct machine hours. The following data is provided:

  1. Planned output in July – Basic Frame 900 units, Triple Window Frame 750 units, Dual Slide Window Frame 800 units
  2. Planned rates and costs:
Raw Material metal sheets – Planned purchase price per sheet $56.00

Planned usage rates per unit of finished product: Basic Frame requires 1 metal sheet
Triple Window Frame requires 3 metal sheets Dual Slide Window Frame requires 2 metal sheets

Direct Labour – Average wage rate $64.00 per hour
Basic Frame requires 1 direct labour hours
Triple Window Frame requires 3 direct labour hours Dual Slide Window Frame requires 2 direct labour hours.

 

 

Flexible budget for the department:

Cost Fixed cost per month Variable cost per budgeted direct machine hour
Indirect materials 0 $0.70
Indirect labour $1,540 $1.25
Miscellaneous $750 $0.35
Share of Admin salaries $15,800 0
Supervision salaries $21,600 0
Depreciation $7,640 0
Insurance and Taxes $3,560 0

Share of Admin salaries, supervision salaries, depreciation and insurance and taxes are not controllable within the department.

Budgeted direct machine hours per unit Basic Frame 2 hours

Triple Window Frame 3 hours Dual Slide Window Frame 3 hours

  1. Actual data provided by the accounting department:

Output in Jul
Basic Frame 850 units

Triple Window Frame 800 units

Dual Slide Window Frame 870 units.
Purchases of the metal sheet raw material in June 9,000 units at $55.50. (Approximately a 3 month supply)
Raw material issued to production – 5,000 metal sheets.
Direct labour costs for July was 5,100 hours at a cost of $328,950.

Overhead costs for July:

Cost Amount $
Indirect materials 4,080
Indirect labour 10,500
Miscellaneous 3,500
Share of Admin salaries 15,000
Supervision salaries 22,000
Depreciation 7,640
Insurance and Taxes 3,560

Actual direct machine hours for July 5,100 hours

Required

  1. Prepare an expense budget for the Department based on budgeted production.
  2. Prepare a flexible budget for the department based on actual production
  3. Use the flexible budget to calculate variances from actual results for the month.
  4. Identify the variances that the department manager would need to investigate and provide reasons for your choices.
  5. Suggest possible causes for those variances.

 

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