The company ABC sells two different types of product : Trainers and flip flop.

The selling price of the trainers is 60€, the selling price of the flip flop is 25€.
The company planned to sell 9 950 trainers and 14 500 flip flop
To be carefull the company want to have an closing stock of 2000 flip flops and 1500 trainers next month. We want 5 kg of
Each trainers require 100g of fabric and 60g of leather, the flip flops require 20g of fabric and 50g of leather
The price of the leather is 60€/kilo and the price of the fabric 10€/kilo. The trainers requires 1h of labour, and 30min for th

The current inventory is the following

Finished goods trainers 981
Finished goods flip flops 1,172
Fabric (in kg) 3.32
Leather 1.03
Determine the cost of each product

SALES BUDGET Forecasted sales Selling price Total revenue

Trainers 9950 60 597000
Flip flop 14500 25 362500
Total 959500

PRODUCTION BUDGET Trainers Flip flops

Units to be sold 9950 14500
+ Planned closing stock 1500 2000
=Total units required for sales and stocks 11450 16500
- Planned opening stock 981 1,172
= units to be produced 10469 15328

MATERIALS USAGE BUDGET Trainers Flip flops Total

Fabric (in grams) 100 20
Total (in kg) 1046.9 306.56 1353.46
Leather (in grams) 60 50
Total (in kg) 628.14 766.4 1394.54
Direct labour 1 0.5

MATERIALS PURCHASE BUDGET Fabric Leather

Quantity necessary to meet requirements 1353.46 1394.54
+ Planned closing stock 5 5
- Planned opening stock 3.32 1.03
= Total units to be purchased 1355.14 1398.51
X Standard cost (planned unit purchase price) 10 60
= Budgeted cost (purchase budget in value) 13551.4 83910.6

LABOUR BUDGET Trainers Flip flops TOTAL

Production volume (units) 10,469 15328
x Standard labour hours 1 0.5
= Total number of hours 10469 7664 18133
x Standard labour rate 11 11
= Total cost (Labour budget in value) 115159 84304 199463

PRODUCTION OVERHEAD BUDGET TRAINERS FLIP FLOPS BUDGETED TRAINERS

Standard variable overhead rates
Indirect materials 1.1 0.45 11515.9
Indirect labour 0.9 0.9 9422.1
Power (variable portion) 0.3 0.15 3140.7
Maintenance (variable portion) 0.2 0.25 2093.8
TOTAL VARIABLE OVERHEADS 26172.5
Budgeted fixed overheads
Depreciation 50,000 22,000
Supervision 30,000 11,000
Power (fiwed portion 25,000 5,000
Maintenance (fixxed portion) 10,000 3,000
TOTAL FIXED OVERHEADS 115,000 41,000

TOTAL COST TRAINERS

304,489

Estimated non-manufacturing overheads €

Stationary (Administration) 3,000
Salaries
Sales 41,000
Office 28,000
Commissions 12,000
Car expenses (sales) 3,000
Advertising 40,000
Miscellaneous 4,000
131,000
s next month. We want 5 kg of each raw materials in our closing stock
d 50g of leather
1h of labour, and 30min for the flip flops for a Standard labour rate of 11€

We will now focus only on trainers and the variances we faced

Actual results Static budget Static budget variances

Units sold 10,140 9950 190
Revenues 609,000 597000 12,000
Manufacturing variable costs 201,160 189,489 11,671
Contribution margin 407,840 407,511 329
Fixed costs 156,000 156,000 0
Operating profit 251,840 251,511 329

Per unit Volume Total

Revenues 60 10,140 608400
Fabric 1 10140
Leather 3.6 36504
Labour 11 111540
Overheads
Indirect materials 1.1 11154
Indirect labour 0.9 9126
Power (var portion) 0.3 3042
Maintenance (var portion) 0.2 2028
Total variable cost 18.1 183534

Contribution margin 424866

Manufacturing fixed costs 115,000

Operating profit 309,866

Actual results Flexible budget Static budget

Units sold 10,140 10,140 9950
Revenues 609,000 608,400 597000
Manufacturing variable costs 201,160 183534 189488.9
Contribution margin 407,840 424866 407511.1
Fixed costs 156,000 115,000 156000
Operating profit 251,840 309,866 251511.1
BUDGETED FLIP FLOPS

3448.8
6897.6
1149.6
1916
13412

TOTAL COST FLIP FLOPS

187,766
and the variances we faced

tic budget variances