Financial Report - Widget Company

Widget Company
Memorandum
To: Kerum A. Unlu
From: Samira Kamran
Date: June 06, 2019
Subject: Financial Report
Monthly Finance Report
This memo has the purpose for showing the summary of the financial position of the static
and the flexible variances of the analysis of the Widget Company as on June 30, 2018. The
analysis reveals that the there is higher operating expenses as well as trends of low-income.
Moreover, the analysis has also revealed that the lower cost does not yield in making the
profit favorable and the actual performance is of having the revenue higher.

The projected units of Widget for the static budget were 6,000 units in June. At same cost per
unit, there was increase in flexible budget by 500 units. It is being analyzed that even if
having the static budget of favorable outcome of revenue, the incurring of the expenses has
decreased the profit of the company by $-1960. There was unfavorable occurrence of the
variance with increase in the units of the flexible units.
Revenue
Widget was having the expectation for selling 6,000 units in the month June. Although, the
company had prepared the flexible budget, it is because there was selling of 6,500 units and
there was the assumption of the company that the price of selling will be same that is $10 per
unit. The revenue for selling 6,500 units at $10 per unit is equal to $65,000. Moreover,
company has reported the unfavorable variances of ($1,760) for the revenue at the June end.
The budget of the company shows that at $9.73 per unit, each unit was sold that is instead of
the originally budgeted at $10 (Robinson et al. 2015).
Variable and Fixed Costs
There was the expectation of the Widget’s original budget that $29,250 would be the variable
cost for producing 6,500 units, however, because of increase in the labor hours and material
for creating the additional units, the actual cost was $31,200.
During my analysis for June, I have found that Widget was having the unfavorable variance
of direct material price of $1,950; it is because for $31,200, the actual paid price was higher
than the allowed standard price for $29,250 for the units of 6,500. The unit cost of $4.50 per
unit was the expected budget; however, $4.80 was the actual cost. The increase of $0.30 per
unit might have caused material price increase or enough material not ordered by the
management for covering total units of 6,500 for June.

Therefore, I would give the recommendations that for the lower material price, the
management should look for the others suppliers and they should also make it sure that the
necessary materials should be ordered by the every department for covering the needs of
production. It is because there would be increase in the variances of price due to additional
cots in handling and shipping in case there is the requirement of urgent order by the
company. The company has also forecasted $24,000 in the fixed cost of this month; however,
in order to produce the units of 6,500, there is the requirement for rent the new equipment,
which has caused increase of the fixed expenses to $25,000. For June, there was unfavorable
fixed cost variance of $1,000 that was caused by the additional expense. It was because of the
new spending, the company was having loss of the profit.
Conclusion
I can suggest after completion of analysis that Widget should be using their budget as the tool
for solving the problems of productions and they should initiate for investing in the other
available ventures. In case of revaluation of the budget, the budget will be functioning as the
as the tool for production and sales coordinating, expense controlling as well as for allowing
to formulate the financial program that includes financing and the investment.