Flexible budget provides logical comparison. The actual cost at the actual activity is compared with the budgeted cost at the time of preparing a flexible budget. Flexibility recognizes the concept of variability.
Flexible budget helps in assessing the performance of departments in relation to the activity level achieved. Cost ascertainment is possible at different levels of activities. It is also useful in fixation of price and preparation of quotations.
With the help of the following given expenses, prepare a budget for production of 10,000 units. Prepare flexible budgets for 5,000 and 8,000 units.
|
Costs |
Price per Unit(Rs.) |
|
Material |
75 |
|
Labor |
20 |
|
Variable Factory Overheads |
15 |
|
Fixed Factory Overheads (Rs 50,000) |
5 |
|
Variable Expenses (Direct) |
6 |
|
Selling Expenses (20% Fixed) |
20 |
|
Distribution Expenses (10% fixed) |
10 |
|
Administrative Expenses ( Rs 70,000) |
7 |
|
Total cost of Sale per unit |
158 |
|
Particulars |
Output 5000 units |
Output 5000 units |
||
|
Rate(Rs) |
Amount |
Rate(Rs) |
Amount |
|
|
Variable or Product Expenses: |
|
|
|
|
|
Material |
75.00 |
3,75,000 |
75.00 |
6,00,000 |
|
Labour |
20.00 |
1,00,000 |
20.00 |
1,60,000 |
|
Direct Variable Overheads |
6.00 |
30,000 |
6.00 |
48,000 |
|
Prime Cost |
101.00 |
5,05,000 |
101.00 |
8,08,000 |
|
Factory Overheads |
|
|
|
|
|
Variable Overheads |
15.00 |
75,000 |
15.00 |
1,20,000 |
|
Fixed Overheads |
10.00 |
50,000 |
6.25 |
50,000 |
|
Work Cost |
126.00 |
6,30,000 |
122.25 |
9,78,000 |
|
Fixed Administrative Expenses |
14.00 |
70,000 |
8.75 |
70,000 |
|
Cost of Production |
140.00 |
7,00,000 |
131.00 |
10,48,000 |
|
Selling Expenses |
|
|
|
|
|
Fixed 20% of Rs.20/- |
8.00 |
40,000 |
5.00 |
40,000 |
|
Variable Cost 80% of Rs.20/- |
16.00 |
80,000 |
16.00 |
1,28,000 |
|
Distributed Expenses |
|
|
|
|
|
Fixed 10% of Rs.10/- |
2.00 |
10,000 |
1.25 |
10,000 |
|
Variable 90% of Rs.10/- |
9.00 |
10,000 |
1.25 |
10,000 |
|
Total Cost of Sale |
175.00 |
8,75,000 |
165.25 |
12,98,000 |