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% Capacity 5,000 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 Material 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 fixed 40% (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 are available in a manufacturing company for a yearly period:

$
Fixed expenses:
Wages and Salaries 9,50,000
Rent, Rate & Taxes 6,60,000
Depreciation 7,40,000
Sundry Admin Expenses 6,50,000
Semi Variable Expenses at 50% Capacity:
Maintenance & Repairs 3,50,000
Indirect Labor 7,90,000
Sales Deptt. Salaries etc. 3,80,000
Sundry Admin Salaries 2,80,000
Variable Expenses:
Material 21,70,000
Labor 20,40,000
Other Expenses 7,90,000
Total 98,00,000

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.

Sales at various levels are:

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

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
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 & 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 Deptt. 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 & Salaries 9,50,000 9,50,000 9,50,000 9,50,000 9,50,000
Rent/Rates & 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 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%.

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% 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 Admn. 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

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