Example 1 The company manufactures products and records variable and fixed costs. Plan (CZK): A total budget overheads 5 000 000 of which ● fixed component 4 000 000 ● variable component 1 000 000 Variable component set at 100 000 products. At the end of the period, the following actual overhead values were found: Actual (CZK): Total overhead budget 5 500 000 of which ● fixed component 4 000 000 ● variable component 1 500 000 Reported: 115 000 products. Tasks: 1. Evaluate budget implementation using the so-called fixed uncalculated budget procedure 2. Evaluate the implementation of the budget using the so-called fixed recalculated budget procedure 3. Evaluate the budget implementation according to the so-called variant budget procedure Solution: Ad 1) Actual costs 5 500 000 CZK Budget 5 000 000 CZK Budget overrun by 500 000 CZK Ad 2) Actual costs 5 500 000 CZK Fixed recalculated budget for 115 000 hours (5 000 000 / 100 000) * 115 000 = 5 750 000CZK Saving budget 250 000 CZK Ad 3) Actual costs 5 500 000 CZK Recalculated variable cost budget for 115 000 hours (1 000 000 / 100 000 * 115 000) + 4 000 000 = 5 750 000CZK Budget overrun by 350 000 CZK Example 2 ABC produces special jackets. The price of one jacket is CZK 1,300 and its production requires CZK 450 unit material, CZK 120 unit wages, CZK 95 for variable production overheads and CZK 65 for variable sales overheads. The budgeted fixed overhead costs of the company are: production fixed overheads CZK 1 200 000 and sales fixed overheads CZK 950 000. Establish a revenue, cost and profit budget for an estimated sales volume of 5 000 jackets. Solution: Items Costs per unit (CZK per unit) Costs for 5 000 units (CZK) Sales 1 300 6 500 000 Material per unit 450 2 250 000 Wages per unit 120 600 000 Variable production overhead per unit 95 475 000 Variable sales overhead per unit 65 325 000 Total variable costs 730 3 650 000 Margin 570 2 850 000 Production overhead fixed 1 200 000 Fixed sales overheads 950 000 Total fixed costs 2 150 000 Profit 700 000 Example 3 ABC produces liquid soaps. Make a budget for sales and revenue collection for the second quarter, if you know the sales plan and know that the price of 1 liter of soap is 70 CZK, 60 % of customers are small customers who pay at purchase and other customers are large customers who pay their obligations for a month after delivery. The soap sales plan is shown in the following table: March April May June Soap sales plan 500 650 480 520 Example 4 ABC company, a.s., produces two types of irons: Iron A requires a unit variable cost of CZK 270 and is sold for CZK 500. Iron B requires a unit variable cost of 380 CZK and sells for 650 CZK. Task: a) Which of these products should the company currently focus on as a priority, if both are equally laborious and demanding in terms of machinery capacity? b) Which of the products should the company focus on if the "bottleneck" of the business process is the capacity of the machinery on which iron B spends twice as much time as iron A? Solution: March April May June 2nd quarter Sales 35 000 45 500 33 600 36 400 115 500 Sales collection (income) - wholesale customers x 14 000 (40 % of 35 000) 18 200 13 440 45 640 Revenue collection (income) - small customers x 27 300 (60 % of 45 500) 20 160 21 840 69 300 Total income x 41 300 38 360 35 280 114 940 Budgeted revenues in the second quarter will be 115 000 CZK and the company's income will be 114 940 CZK. Example 5 The company management considers variants of the sold volume and price changes based on the calculation of how much it would be necessary to increase the sold quantity in order not to change the original budgeted profit. It is based on the fact that the currently achieved contribution from sales for the company as a whole amounts to 0.25 or 25 %. The company's management is considering a variant price reduction of 5 %, 10 %, 15 % and 20 %. • Find out what percentage the sales volume would have to increase in the circumstances in order for the company to reach its original budgeted profit. Solution: The following applies to the price reduction: Quantity = reduction / (contribution from sales – reduction) x 100 The following applies to the increase: Quantity = increase / (contribution from sales + increase) x 100 Intended price reduction (in %) Required increase in sales (in %) 5 25 10 66 15 150 20 400 5% reduction = 5 / (25-5) = 0.25 = 25%