Question

PA11.

Answer 1

COMPLETE QUESTION IS AS UNDER:

Prepare a flexible budgeted income for 120,000 units using the following information from a static budget for 100,000 units:

                                                                                                     $

Sales price                                                                                          90

DIRECT MATERIAL COST per unit                                              30

DIRECT LABOUR COST per unit                                                      15

VARIABLE MANUFACTURING COST per unit                               13

FIXED MANUFACTURING OH                                                $75,000

VARIABLE SALES AND ADMINISTRATION COST per unit        3

FIXED SALES AND ADMINISTRATION EXPENSE                   $25,000

TAXES @30% OF INCOME BEFORE TAXES

Answer: FLEXED BUDGET FOR ACTUAL PRODUCTION 120000 UNITS

                                                                                                             $

SALES REVENUE (90*120,000)                                               10,800,000

COST OF SALE

DIRECT MATERIAL COST (30*120,000)    3,600,000

DIRECT LABOUR COST (15*120,000)        1,800,000

V.MANUFACTURING COST (13*120,000)  1,560,000               (6,960,000)

OPERATING PROFIT                                                                      3,840,000

FIXED MANUFACTURING OH                                                    (75,000)

V.SALES AND ADMINISTRATION COST   (3*120,000)               (360,000)

FIXED SALES AND ADMINISTRATION EXPENSE                    (25,000)

PROFIT BEFORE INTEREST AND TAX                                        3,380,000

TAX @30%     (3,380,000*30%)                                                   (1,014,000)

PROFIT AFTER TAX                                                                       2,366,000

Explanation:

Flexed budget is based on very simple formula which is:

Total cost = Cost rate per unit * Numbers of actual units sold