question archive After a few years of operation on the market, Beyblade Limited is currently operating at 75% of its capacity
After a few years of operation on the market, Beyblade Limited is currently operating at 75% of its capacity
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After a few years of operation on the market, Beyblade Limited is currently operating at 75% of its capacity. In the past two years, the company's levels of operations were 55% and 65% respectively. The current production and sales level in 2020 are actually 75,000 units. The company is targeting a capacity level of 85% for the next financial year in 2021, despite covid-19 impacts. The following cost details are available:
75% Direct Materials ($) Direct Labour($) Production overheads ($) Sales overheads ($) Administrative overheads ($) 55% 1,100,000 550,000 310,000 320,000 160,000 65% 1,300,000 650,000 330,000 360,000 160,000 1,500,000 750,000 350,000 400,000 160,000 Profit margin is estimated to be 20% on sales. For the next financial year, costs are expected to increase by the following percentage: Direct materials 8% Direct Labour 5% Variable production overheads 5% Variable selling overheads 8% Fixed production overheads 10% Fixed selling overheads 15% Administrative overheads 10% REQUIRED: Assuming no inventory is kept, prepare a Flexible Budget for the next financial year 2021 at 85% capacity level, showing clearly Total Cost, Profit and Total Sales.
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Solution:
| Flexible Budget for the financial year 2021 |
||
| Particulars | per unit | Amount |
| Sales | 4731500 | |
| Variable Expenses | ||
| Direct Materials | 21.6 | 1836000 |
| Direct Labour | 10.5 | 892500 |
| Semi - Variable Expenses: | ||
| Production overheads | ||
| Fixed | 2.588 | 220000 |
| Variable | 2.1 | 178500 |
| Sales overheads | ||
| Fixed | 1.353 | 115000 |
| Variable | 4.32 | 367200 |
| Fixed Expenses: | ||
| Administrative overheads | 2.071 | 176000 |
| Total Cost | 3785200 | |
| Profit | 946300 |
Working Notes:
1. At 75%- 75000 units are produced. So by unitary method:
At 1% - 1000
At 85% - 85000
At 65% - 65000
At 55% - 55000
2. Variable Production overhead per unit =[ Current Production Overhead - Previous Production Overhead] / [Current Production - Previous Production]
= [350000 - 330000] / [75000 - 65000] = 20000 / 10000 = 2
Therefore Budgeted Variable Production Overhead = 2 * 105% = 2.1
3. Variable Selling Overhead per unit = [ Current Selling Overhead - Previous Selling Overhead] / [Current Selling units- Previous Selling units]
= [400000 - 360000] / [75000 - 65000] = 40000 / 10000 = 4
Therefore Budgeted Variable Selling Overhead = 4 *108% = 4.32
4. Fixed Production Overhead = [Total Current Production - Variable Production]
= [350000 - (2*75000)] = 350000 - 150000 = 200000
Therefore Budgeted Fixed Production Overhead = 200000 * 110% = 220000
5. Fixed Selling Overhead = [Total Current Selling - Variable Selling]
= [400000 - (4 * 75000)] = 400000 - 300000 = 100000
Therefore Budgeted Fixed Selling Overhead = 100000 * 110% = 115000
6. Budgeted Administrative Overhead = 110 % * 160000 = 176000
7. Let the sales be x then profit will be 20% i.e., .20x
Sales - Profit = Total Cost
x - .20x = 3785200
.80x = 3785200
x = 3785200 / .80 = 4731500
Profit = Sales - Cost = 4731500 - 3785200 = 946300
