Flexible Budget Practical Problems and Solutions

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on September 9, 2021

Problem 1

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)

Solution

Flexible Budget at a Capacity of
Capacity of
Output Units
50%
5,000
80%
8,000
100%
10,000
$ $ $
Raw Materials 4,00,000 6,40,000 8,00,000
Labor 2,50,000 40,000 50,000
Direct Expenses 75,000 1,20,000 1,50,000
Prime Cost 7,25,000 11,60,000 14,50,000
Factory Expenses 50% Fixed (50,000) 25,000 40,000 50,000
Factory Cost 7,75,000 12,25,000 15,25,000
Admin Expenses 40% Fixed (60,000) 24,000 24,000 24,000
Variable 60% 36,000 57,600 72,000
Total Cost 8,35,000 13,06,000 16,21,000

Problem 2

The following data is available in a manufacturing company for a yearly period.

$
Fixed Expenses
Wages and Salaries 9,50,000
Rent/Rates and Taxes 6,60,000
Depreciation 7,40,000
Sundry Admin Expenses 6,50,000
Semi-variable Expenses at 50% Capacity
Maintenance and Repairs 3,50,000
Indirect Labor 7,90,000
Sales Department Salaries, etc. 3,80,000
Sundry Admin Salaries 2,80,000
Variable Expenses
Materials 21,70,000
Labor 20,40,000
Other Expenses 7,90,000
Total 98,00,000

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:

50% Capacity 100
60% Capacity 120
75% Capacity 150
90% Capacity 180
100% Capacity 200

For this task, prepare a flexible budget for the year and forecast the profit at 60%, 75%, 90%, and 100% capacity.

Solution

Flexible Budget
50% ($) 60% ($) 75% ($) 90% ($) 100% ($)
(A)
Variable Expenses
Material 21,70,000 26,04,000 32,55,000 39,06,000 43,40,000
Labor 20,40,000 24,48,000 50,60,000 36,72,000 40,80,000
Other Expenses 7,90,000 9,48,000 11,85,000 14,22,000 15,80,000
Semi-variable Expenses
Maintenance and Repairs 3,50,000 3,50,000 3,85,000 4,20,000 4,20,000
Indirect labor 7,90,000 7,90,000 8,69,000 9,48,000 9,48,000
Sales Department Salaries 3,80,000 3,80,000 4,18,000 4,56,000 4,56,000
Sundry Expenses 2,80,000 2,80,000 3,08,000 3,36,000 3,36,000
Fixed Expenses
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
Depreciation 7,40,000 7,40,000 7,40,000 7,40,000 7,40,000
Sundry Admin 6,50,000 6,50,000 6,50,000 6,50,000 6,50,000
Total Cost (A) 98,00,000 108,00,000 124,00,000 141,60,000 152,60,000
Sales (B) 100,00,000 120,00,000 150,00,000 180,00,000 200,00,000
Profit (A – B) 2,00,000 12,00,000 25,20,000 38,40,000 47,40,000

Problem 3

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)

Solution

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 ($) Total ($)
Sales Value 200 20,00,000 196 23,52,000 190 30,40,000
Material Cost 100 10,00,000 102 12,24,000 105 16,80,000
Labor Cost 30 3,00,000 30 3,60,000 30 4,80,000
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
Fixed OH 10 1,00,000 8.33 1,00,000 6.25 1,00,000
Total Cost 180 18,00,000 178.33 21,40,000 176.25 28,28,000
Profit 20 2,00,000 17.67 2,12,000 13.25 2,12,000

2 thoughts on “Flexible Budget Practical Problems and Solutions”

  1. Present operating at 80% capecity produce and salls 40000 units these are expencess per unit.
    Direct Material. 15
    Direct labour. 10
    Factory overhead. 5
    Salling overhead. 2
    Salling price. 45
    Prepare a budget at 60% & 90% capecity…. Plz solve this sir. Whatsapp no..7247580403…

    Reply

Leave a Comment