ACC08702 Flexible Budgeting Analysis with Variance Calculation: Selling Overheads & Consultancy Services Case Study, Singapore

Assignment

• Selling and distribution overheads are partly fixed and partly semi-variable. The fixed element in the budget is $60,000. The semi-variable costs were budgeted to have the following pattern.

• Administration overheads are fixed.
• A standard selling price of $3 was set for the year.

Required:

a) Restate the above profit statement showing a flexible budget column and recalculate the variances.

b) Write a report to the Managing Director interpreting your revised statement and giving the advantages of flexible budgeting over fixed budgeting for control purposes.

Tutorial Exercise 3.8

Corporate Consulting Services operates a flexible budgeting system. The following information was obtained to produce the draft budget for the next budget period:

• The average charge-out rate of the company’s consultants is expected to be $100 per hour. However, this rate will increase by 10% if the company’s consultancy work exceeds 18,000 consultancy hours since the company will have to employ free-lance consultants to undertake additional work.
• Travel and subsistence expenses are expected to average $10 per chargeable consulting hour.
• The average annual salary of the 12 consultants employed by the company is $60,000 per annum. The consultants, who are employed on annual fixed contracts, provide a maximum of 1,500 hours per annum.
• Free-lance consultants are paid $55 per hour.