Budget Control and Variance Analysis

CASE STUDY

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
1. Calculation of breakeven point and margin of safety..............................................................3
2. Calculation of profit with the technique of marginal costing and absorption costing.............5
PART B...........................................................................................................................................6
i) Demonstrate an understanding by explaining different types of costs and their relevance to
pricing decisions and the role of budget......................................................................................6
ii) Calculate all material variance, labor rate variance and fixed overhead expenditure variance
.....................................................................................................................................................8
iii) Prepare budgets to control operations....................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Budget control assumes that management has made a budget for all departments / units of the
enterprise and these budgets are summarized as a master budget. Budgetary control requires the
recording of actual performance, its continuous comparison with budgetary performance, and the
analysis of variations in terms of causes and responsibility. Budget control is a system that
suggests appropriate corrective action to prevent future deviations. A good budgeting system
should involve individuals at different levels while preparing the budget. Subordinates should
not accuse them of any kind. Budgetary control considers the existence of business enterprise
forecasts and plans. There should be proper determination of authority and responsibility.
Delegation of authority should be done appropriately. This project report consists of two parts; A
and B. First part covers the concept of breakeven point and margin of safety and second part
focuses on variance analyses.
PART A
1. Calculation of breakeven point and margin of safety
Breakeven point: The break-even point (BEP) in business — and especially cost accounting
— is the point at which total cost and total revenue are equal, i.e. "even". There is no net loss
or gain, and none is "broken", although the opportunity cost has been paid and the capital has
received a risk-adjusted, expected return. In short, all the costs paid are paid, and there is
neither profit nor loss.
The size of the degree of operation in which the revenue amount and the cost amount agree
with the entire enterprise or each division. That is, if the profit is greater than that, it means
the sales volume or production amount where the loss is recorded if it is less than or equal to
it. This is achieved by the intersection of profit and cost on the break-even point chart. A
guideline for preparing this short-term benefit plan; the calculation of breakeven point has
been done below:
Price per unit (£) Units Total (£)
Selling price per unit 24 140,000 £