Flexible Budget Practical Problems and solutions

Problem 1

Prepare a flexible budget for the production of 80% and 100% activity on the basis of the following information.

Production at 50% Capacity5,000 Units
Raw Material$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 Material4,00,0006,40,0008,00,000
Labor2,50,00040,00050,000
Direct Expenses75,0001,20,0001,50,000
Prime Cost7,25,00011,60,00014,50,000
Factory Expenses 50% fixed (50,000)25,00040,00050,000
Factory Cost7,75,00012,25,00015,25,000
Admin Expenses fixed 40% (60,000)24,00024,00024,000
Variable 60%36,00057,60072,000
Total Cost8,35,00013,06,00016,21,000

Problem 2

The following data are available in a manufacturing company for a yearly period:


$
Fixed expenses:
Wages and Salaries9,50,000
Rent, Rate & Taxes6,60,000
Depreciation7,40,000
Sundry Admin Expenses6,50,000
Semi Variable Expenses at 50% Capacity:
Maintenance & Repairs3,50,000
Indirect Labor7,90,000
Sales Deptt. Salaries etc.3,80,000
Sundry Admin Salaries2,80,000
Variable Expenses:
Material21,70,000
Labor20,40,000
Other Expenses7,90,000
Total98,00,000

Assume that the fixed expenses remain constant for all levels of production, the semi-variable expenses remain constant between 45% and 65% capacity; increasing by 10% between 65 percent and 80 percent capacity; and by 20 percent between 80% and 100% capacity.

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Sales at various levels are:

50%Capacity100
60%Capacity120
75%Capacity150
90%Capacity180
100%Capacity200

Required:

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
Material21,70,00026,04,00032,55,00039,06,00043,40,000
Labor20,40,00024,48,00050,60,00036,72,00040,80,000
Other expenses7,90,0009,48,00011,85,00014,22,00015,80,000
Semi Variable Expenses
Maintenance & Repairs3,50,0003,50,0003,85,0004,20,0004,20,000
Indirect labor7,90,0007,90,0008,69,0009,48,0009,48,000
Sales Deptt. Salaries3,80,0003,80,0004,18,0004,56,0004,56,000
Sundry Expenses2,80,0002,80,0003,08,0003,36,0003,36,000
Fixed Expenses
Wages & Salaries9,50,0009,50,0009,50,0009,50,0009,50,000
Rent/Rates & Taxes6,60,0006,60,0006,60,0006,60,0006,60,000
Depreciation7,40,0007,40,0007,40,0007,40,0007,40,000
Sundry admin6,50,0006,50,0006,50,0006,50,0006,50,000
Total Cost (A)98,00,000108,00,000124,00,000141,60,000152,60,000
Sales (B)100,00,000120,00,000150,00,000180,00,000200,00,000
Profit (A – B)2,00,00012,00,00025,20,00038,40,00047,40,000

Problem 3

A factory is currently working to 50% capacity and produces 10,000 units. Estimate the profits of the company when it works at 60% and 80% capacity and offer your critical comments.

At 50% working raw material cost increases by 2% and selling price falls by 2%. At the 80% working raw material cost increases by 5% and selling price falls by 5%.

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At 50% working the product costs $180 per unit and is sold at $200 per unit.

The unit cost of $180 is made up as follows:

Material: 100
Labor: 30
Factory overhead: 30 (40% fix)
Admn. overhead: 20 (50% fix)

Solution

Output: 10,000 unit 50% capacityOutput: 12,000 units 60% capacityOutput: 16,000 units 80% capacity
Per unit ($)Total ($)Per unit ($)Total ($)Per unit ($)Total ($)
Sales Value20020,00,00019623,52,00019030,40,000
Material Cost10010,00,00010212,24,00010516,80,000
Labor Cost303,00,000303,60,000304,80,000
Variable Factory Overhead181,80,000182,16,000182,88,000
Fixed Factory Overhead121,20,000101,20,0007.501,20,000
Variable Admn. Overhead101,00,00010120,000101,60,000
Fixed OH101,00,0008.331,00,0006.251,00,000
Total Cost18018,00,000178.3321,40,000176.2528,28,000
Profit202,00,00017.672,12,00013.252,12,000

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

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