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Budgetory Control Flexible Budget - Questions

This document provides examples of flexible budgets, which adjust based on changes in actual revenue or activity levels, unlike static budgets which contain fixed expense amounts. It includes four illustrations of flexible budgets: (1) budgets production expenses for 7,000 and 9,000 units based on a budget for 10,000 units, (2) calculates overhead rates at 70%, 80%, and 90% capacity, (3) prepares a flexible budget for expenses at 80%, 90%, and 100% activity levels, and (4) prepares flexible administration, selling, and distribution cost budgets at 90%, 100%, and 110% capacity.

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529 views2 pages

Budgetory Control Flexible Budget - Questions

This document provides examples of flexible budgets, which adjust based on changes in actual revenue or activity levels, unlike static budgets which contain fixed expense amounts. It includes four illustrations of flexible budgets: (1) budgets production expenses for 7,000 and 9,000 units based on a budget for 10,000 units, (2) calculates overhead rates at 70%, 80%, and 90% capacity, (3) prepares a flexible budget for expenses at 80%, 90%, and 100% activity levels, and (4) prepares flexible administration, selling, and distribution cost budgets at 90%, 100%, and 110% capacity.

Uploaded by

Jash Sanghvi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Prof : Ankita Rohatgi Management Accounting for Engineers

FLEXIBLE BUDGET
A flexible budget adjusts based on changes in actual revenue or other activities. The
result is a budget that is fairly closely aligned with actual results. This approach varies
from the more common static budget, which contains nothing but fixed expense amounts
that do not vary with actual revenue levels.
Illustration 1 : (Flexible budget)
For production of 10,000 units the following are budgeted expenses

Per Unit
P re
pa ₹ re
a Direct Materials 48
Direct Labour 24
Variable Overheads 20
Fixed Overheads (₹1,20,000) 12
Variable Expenses (Direct) 4
Selling Expenses (10% fixed) 12
Administration Expenses (₹40,000 fixed) 4
Distribution Expenses (20% fixed) 4
128
budget for production of 7,000 units and 9,000 units.

Illustration 2 : (Flexible budget)


Draw up a flexible budget for overhead expenses on the basis of the following data
and determine the overhead rates at 70%, 80% and 90%

Plant Capacity At 80%


capacity
₹
Variable Overheads:
Indirect labour 12,000
Stores including spares 4,000
Semi Variable:
Power (30% - Fixed: 70% -Variable) 20,000
Repairs (60%- Fixed: 40% -Variable) 2,000
Fixed Overheads:
Depreciation 11,000
Insurance 3,000
Salaries 10,000
Total overheads 62,000
Estimated Direct Labour Hours 1,24,000
Illustration 3 : (Flexible budget)
A factory which expects to operate 7,000 hours, i.e., at 70% level of activity, furnishes
details of expenses as under:

1
Prof : Ankita Rohatgi Management Accounting for Engineers

Variable expenses ₹1,260


Semi-variable expenses ₹1,200
Fixed expenses ₹1,800
The semi-variable expenses go up by 10% between 85% and 95% activity and by
20% above 95% activity. PREPARE a flexible budget for 80, 90 and 100 per cent
activities.
Illustration 4 : (Flexible budget)
A department of Company X attains sale of ₹ 6,00,000 at 80 per cent of its normal
capacity and its expenses are given below:
Administration costs:

(₹)
Office salaries 90,000
General expenses 2 per cent of sales
Depreciation 7,500
Rates and taxes 8,750
Selling costs:
Salaries 8 per cent of sales
Travelling expenses 2 per cent of sales
Sales office expenses 1 per cent of sales
General expenses 1 per cent of sales
Distribution costs:
Wages 15,000
Rent 1 per cent of sales
Other expenses 4 per cent of sales
PREPARE flexible administration, selling and distribution costs budget, operating at 90
per cent, 100 per cent and 110 per cent of normal capacity.

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