Question

Crosby ltd has prepared the following flexible budget for the coming year. The budgeted level of activity is 5,000 units

sales 125,000

Direct material 37,5000

Direct labour 30,000

Variable overheads 15,000

Fixed overheads 20,000

profit 22,000

If the budget is flexed to a level of activity of 7,500 units, what would be the budgeted total cost be?

Answer 1

Unllike Static budget, A flexible budget is a budget that is easily adjustable to different levels of the activity or volume levels of a Business organisation .so there is the flexibility of change from the amounts entered when the budget was created by the organisation.

	Budgeted level of activity	5,000 units(as given)	7500 units	Working Notes
A	Sales	125000	187500	Per unit Sales price = 125000/5000units
				=25 per units
				therefore for 7500 units the sale price = 25*7500
				187500
B	Direct Material	375000	562500	Per unit Direct Material = 375000/5000units
				= 75 per units
				therefore for 7500 units the Direct material cost = 75*7500
				562500
C	Direct labour	30000	45000	Per unit Direct labourl = 30000/5000units
				=6 per units
				therefore for 7500 units the Direct labour cost = 6*7500
				45000
D	Variable overheads	15,000	22500	Per unit Variable overheads = 30000/5000units
				=3 per units
				therefore for 7500 units the Variable overheadsl cost = 3*7500
				22500
F	Fixed overhead	20000	20000	total fixed overhead will remain constant at increased level of production
G	TOTAL COST (B+C+D+F)	440000	650000