Material Cost 700 Labour Cost 250 Variable overheads 200 Selling expenses 20

# Material cost 700 labour cost 250 variable overheads

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Material Cost 700 Labour Cost 250 Variable overheads 200 Selling expenses (20% fixed) 130 Administrative expenses 200 Total Cost 1,480 Prepare a budget for production of 600 units and 800 units assuming administrative expenses are rigid for all level of production.
Solution - Flexible Budget For 600 units For 800 units Particulars Per Unit Total Per Unit Total A. Variable Cost Materials 700.00 420,000 700 560,000 Labour 250.00 150,000 250 200,000 Variable overheads 200.00 120,000 200 160,000 Var component of selling exps - 80% 80% of 130 104.00 62,400 104 83,200Toal Variable Cost 1,254.00 752,400 1,254 1,003,200 B. Fixed Cost Administrative expenses 333.33 200,000 250.00 200,000 Fixed component of selling expenses - 20% See WN 43.33 26,000 32.50 26,000 Toal Fixed Cost 376.67 226,000 283 226,000 C. Total Cost 1,631 978,400 1,537 1,229,200Working Notes Prodn / Units Total Cost per unit Total Cost Variable 80% Fixed Cost 20% Selling Expenses 1,000 130 130,000 104,000 26,000
QQ 6. Flexible BudgetingThe budgeted cost of a company specializing in the production of a product at the optimum capacity of 6,400 units per annum amounts to Rs. 1,76,048 as detailed below: Particulars Rs Rs A. Fixed costs 20,688 B. Variable costs Power 1,440 Repairs etc. 1,700 Miscellaneous 540 Direct material 49,280 Direct Labour 102,400 155,360 Total cost 1,76,048 176,048 The company decides to have a flexible budget with a production target of 3,200 and 4,800 units (the actual quantity proposed to be produced being left to a later date before commencement of the budget period) Prepare a flexible budget for production levels of 50% and 75%. Assuming, selling price per unit is maintained at Rs. 40 as at present, indicate the effect on net profit. Administrative , selling and distribution expenses continue at Rs.3,600.
The production at 100% capacity is 6400 units, so it will be 3,200 units at 50% and 4,800 units at 75% capacity. The variable expenses will change in that proportion.Solution to QQ 6 Flexible Budget Particulars Unit100%75%50%A. Units Sold Nos6,400 4,800 3,200 B. Sales - Per Unit Rs / No 40 40 40 C. Total Sales Rs 256,000 192,000 128,000 D. Cost of Sales a. Variable Costs Direct material Rs 49,280 36,960 24,640 Direct Labour Rs 102,400 76,800 51,200 Power Rs 1,440 1,080 720 Repairs Rs 1,700 1,275 850 Miscellaneous Rs 540 405 270 Total variable costs Rs 155,360 116,520 77,680 b. Fixed Costs Rs 20,688 20,688 20,688 Total Costs Rs 176,048 137,208 98,368 E. Gross Profit Rs 79,952 54,792 29,632 Less: Adm., selling and Dist. Costs Rs 3,600 3,600 3,600 F. Net Profit Rs 76,352 51,192 26,032
Q 7. Comprehensive Budget ExerciseRoyal Company is preparing budgets for the second quarter ending June 30, 2016. The following data is provided to you: Budgeted sales of the company’s only product for the next five months are:April20,000 unitsMay50,000 unitsJune30,000 unitsJuly25,000 unitsAugust15,000 unitsThe selling price is \$10 per unit.Additional EXPECTED CASH COLLECTIONS data:All sales are on account.The company collects 70% of these credit sales in the month of the sale; 25% are collected in the month following sale; and the remaining 5% are uncollectible.The accounts receivable balance on March 31 was \$30,000. All of this balance was collectible.Additional Production data:The company desires to have inventory on hand at the end of each month equal to 20% of the following month’s budgeted unit sales.

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