Flexible Budget Practical Problems and Solutions
Using the following information, prepare a flexible budget for the production of 80% and 100% activity.
|Production at 50% Capacity||5,000 Units|
|Raw Materials||$80 per unit|
|Direct Labor||$50 per unit|
|Direct Expenses||$15 per unit|
|Factory Expenses||$50,000 (50) (Fixed)|
|Administration Expenses||$60,000 (Variable)|
|Flexible Budget at a Capacity of|
|Factory Expenses 50% Fixed (50,000)||25,000||40,000||50,000|
|Admin Expenses 40% Fixed (60,000)||24,000||24,000||24,000|
The following data is available in a manufacturing company for a yearly period.
|Wages and Salaries||9,50,000|
|Rent/Rates and Taxes||6,60,000|
|Sundry Admin Expenses||6,50,000|
|Semi-variable Expenses at 50% Capacity|
|Maintenance and Repairs||3,50,000|
|Sales Department Salaries, etc.||3,80,000|
|Sundry Admin Salaries||2,80,000|
You should assume that the fixed expenses remain constant for all levels of production.
Semi-variable expenses remain constant between 45% and 65% capacity, increasing by 10% between 65% and 80% capacity, and by 20% between 80% and 100% capacity.
The sales at various levels of capacity are the following:
For this task, prepare a flexible budget for the year and forecast the profit at 60%, 75%, 90%, and 100% capacity.
|50% ($)||60% ($)||75% ($)||90% ($)||100% ($)|
|Maintenance and Repairs||3,50,000||3,50,000||3,85,000||4,20,000||4,20,000|
|Sales Department Salaries||3,80,000||3,80,000||4,18,000||4,56,000||4,56,000|
|Wages and Salaries||9,50,000||9,50,000||9,50,000||9,50,000||9,50,000|
|Rent/Rates and Taxes||6,60,000||6,60,000||6,60,000||6,60,000||6,60,000|
|Total Cost (A)||98,00,000||108,00,000||124,00,000||141,60,000||152,60,000|
|Profit (A – B)||2,00,000||12,00,000||25,20,000||38,40,000||47,40,000|
A factory is currently working at 50% capacity and produces 10,000 units. Estimate the profits of the company when the factory works at 60% and 80% capacity, and offer your critical comments.
At 50% capacity, the cost of working raw materials increases by 2% and the selling price falls by 2%.
At 80% capacity, the working raw materials cost increases by 5% and selling price falls by 5%.
Additionally, at 50% capacity, working the product costs $180 per unit and it is sold at $200 per unit.
The unit cost of $180 consists of the following:
- Material: $100
- Labor: $30
- Factory overhead: $30 (40% fixed)
- Admin overhead: $20 (50% fixed)
|Output: 10,000 units (50% capacity)||Output: 12,000 units (60% capacity)||Output: 16,000 units (80% capacity)|
|Per unit ($)||Total ($)||Per unit ($)||Total ($)||Per unit ($)||Total ($)|
|Variable Factory Overhead||18||1,80,000||18||2,16,000||18||2,88,000|
|Fixed Factory Overhead||12||1,20,000||10||1,20,000||7.50||1,20,000|
|Variable Admin Overhead||10||1,00,000||10||120,000||10||1,60,000|