Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO CASE STUDIES 465

Table A4.8 Carsons Stores

In £’000 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year total

Cash inflow from sales 100 110 110 120 440
Purchases 40404444168
Expenses 45 46 46 47 184
Capital expenditure 20 20
Income tax 20 20
Dividends 15202560
Cash outflow 85 121 130 116 452
Net cash flow 15 − 11 − 20 4 − 12
Cumulative cash flow 15 4 − 16 − 12

Case study 8: White Cold Equipment PLC

While the flexible budget provides a better tool for evaluating manufacturing
performance, the business cannot ignore the difference between the budgeted
level of sales (1,050 units) and the actual level of sales (1,000 units). The loss of
margin is shown in Table A4.9.
The full variance reconciliation is as in Table A4.10. This comes back to the
variance in the original actual versus budget report for the month.
In explaining the variances, it must be remembered that WCE can sell all its
output and that it has failed to produce (and therefore sell) 50 units. This may be
the result of a productivity or a quality problem.
Although 9% fewer materials have been used (90/1,000), this has been at an
additional 8% cost (£20/£250). The overall favourable materials variance may be a
result of less wastage or a greater productivity of materials used in the manufacture

Table A4.9 White Cold Equipment

Loss of gross margin

Shortfall no. of units 50

Gross margin per unit £230

Loss of gross margin 11,500

Table A4.10 White Cold Equipment

Total adverse manufacturing expense variance −3,550

Favourable selling and admin variance 6,500

Variance based on actual production volume 2,950

Loss of margin on units not produced −11,500

Total variance −8,550