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Proctor & Gamble: Original Budget and Variance Analysis

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Added on  2019-10-18

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This article discusses the original budget and variance analysis of Proctor & Gamble's new product Alpha 577. It also critically analyzes the usefulness of variance analysis as part of directing management attention in a business.

Proctor & Gamble: Original Budget and Variance Analysis

   Added on 2019-10-18

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Procter & Gamble is the global leader in beauty and personal care. Its key brands here include Olay, Gillette and Pantene. The company has however underperformed some of its rivals includingUnilever and L’Oréal, which have made significant gains in the Chinese market to Procter & Gamble’sdetriment. Procter & Gamble may suffer from being too mid-range for premium-focused China, while toopremium for lesser developed emerging markets such as India.Proctor & Gamble wants to produce a new product codenamed ‘Alpha 577’. The product requires a singleoperation, and the standard cost for this operation is presented below:Standard Cost Card for ALPHA 577Direct Materials:2 kg of material A @ €10 per kg20.001 kg of material B @ €15 per kg15.00Direct labour (3 hours @ €9 per hour)27.00Variable overhead (3 hours @ €2 per direct labour hour)6.00Total standard variable cost68.00Standard contribution margin20.00Standard Selling Price88.00Practor & Gamble planned to produce 10,000 units of Alpha 577 for the month of September 2014. Itanticipated that the Budgeted Contribution would be €200,000 and that they would have budgeted fixedcosts of €120,000 with a budgeted profit of €80,000.The actual results for October were:Sales (9000 units @€90)€810,000Direct Materials:A: 19,000 kg @ €11 per kg209,000B: 10,100 kg @ €14 per kg141,400Direct labour (28,500 @ €9.60 per hour)273,600Variable overheads52,000(€676,000)Contribution134,000Fixed costs (116,000)Profit18,000Required:
Proctor & Gamble: Original Budget and Variance Analysis_1

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