A consulting firm produces a service that requires the use of labor and
materials. Each unit of service requires a standard labor time of 30
minutes (0.5 hours). The average pay rate for a labor hour is £20. The
consulting firm considers all materials that are required for the
service as variable overheads (OH), the cost of which is directly
associated with the labor hours worked. It has been estimated that
variable OH rate is £10 per service hour.
The budgeted and actual costs, revenue and units for the month November are given in the table below:
Units of Service
Variable OH costs
1. Calculate the flexed budget and the key variances between budgeted and actual results.
2. Reconcile the original budget and present the relationship between the budgeted and the actual profit for the month November
3. Discuss the calculated variances, and provide suggestions for better cost management