Accounting for Managers: Interpreting accounting information for decision-making

404 ACCOUNTING FOR MANAGERS

Mega Stores’ finance director has produced a budget, which has been approved
by the board of directors, to increase sales by 35% next year and to improve
operating profit margin to 15% of sales. Corporate overheads will be contained at
£22 million.
The strategy determined by the marketing director is to continue expanding its
sales by winning market share from competitors and by increasing the volume of
sales to existing customers. It aims to increase its direct mailing of catalogues to
customers and its television advertising. The company also intends to open new
stores to extend its geographic coverage.
Mega Stores also plans to improve its cost effectiveness by continuing its
investments in major regional warehouses and distribution facilities servicing its
national network of stores, together with upgrading its information systems to
reduce inventory and delivery lead times to its retail network.
You have been asked to produce a report for the senior management team
identifying the financial information that is required to support the business
strategy. You are also asked to identify any non-financial issues arising from
the strategy.

Questions for Chapter 15

15.1 Conrad Corporation has a budget to produce 2,000 units at a variable cost
of £3 per unit, but actual production is 1,800 units with an actual cost of £3.20
per unit.
Calculate the variance based on a flexible budget and determine whether it is
favourable or adverse.

15.2 Calculate the material price variance for Cracker Barrel based on the
following information:

Standard Actual

Quantity purchased (units) 5,000 5,200

Price per unit £3.10 £3.05

15.3 Gargantua PLC has produced the following budget and actual information
(Table A1.7).

Table A1.7 Gargantua budget and actual

Budget Actual

Sales units 10,000 11,000

Price per unit £37.10 £36

Direct materials

Magna – per unit 4 kg @ £1.50/kg 46,500 kg – cost £67,425

Carta – per unit 1 kg @ £5/kg 11,500 kg – cost £58,650

Labour – per unit 2.5 hours @ £7 26,400 – cost £187,440

Fixed costs 75,000 68,000