Question

PCL (Pty) Ltd gave you the following expenses that were budgeted to produce 10,000 units in their factory as shown below:

	Pula
Materials	70
Labour	25
Variable factory overheads	20
Fixed factory overhead (P100,000)	10
Direct Variable expenses	5
Selling expenses (10% were fixed costs)	13
Distribution expenses (20% were fixed)	7
Fixed Administrative expenses (P50,000)	5
Total cost of sale per unit	155

Required:

Prepare a flexible budget for the production of 8,000 units.

Answer 1

Flexible budgets are prepared for varying production. Here varying production is 8000 which should be based on the production capacity of 10,000 units. The fixed expenses will be same for both capacity at 8000 and 10,000 units

PCL Ltd

Flexible budget for production

	10,000 units	10000 units	8000 units	8000 units
Name of expenses	Per unit	Total amount	Total amount	Total amount/8000
Production expenses
Material	$             70.00	$      700,000.00	$      560,000.00	$                         70.00
Labor	$              25.00	$      250,000.00	$      200,000.00	$                         25.00
Overheads	$              20.00	$      200,000.00	$      160,000.00	$                         20.00
Direct (variable expenses)	$                5.00	$        50,000.00	$        40,000.00	$                           5.00
Fixed overheads	$              10.00	$      100,000.00	$      100,000.00	$                         12.50
Selling expenses
Fixed	$                1.30	$        13,000.00	$        13,000.00	$                           1.63
Variable	$              11.70	$      170,000.00	$        93,600.00	$                         11.70
Distribution expenses
Fixed	$                1.40	$        14,000.00	$        14,000.00	$                           1.75
Variable	$                5.60	$        56,000.00	$        44,800.00	$                           5.60
Administration expenses-Fixed	$                5.00	$        50,000.00	$        40,000.00	$                           5.00
Total cost of sale	$           155.00	$ 1,603,000.00	$ 1,265,400.00	$                       158.18