Flexible Budget:

Problem 1-
A factory is currently working to 50% capacity and produces 10,000 units. Estimate the
profits of the company when it works at 60% and 80% capacity and offer your critical
comments. At 50% working raw material cost increases by 2% and selling price falls by 2%.
At the 80% working raw material cost increases by 5% and selling price falls by 5%.
At 50% working the product costs Rs.180 per unit and is sold at Rs.200 per unit.
The unit cost of Rs.180 is made up as follows:

Material: 100
Labor: 30
Factory overhead: 30 (40% fixed)
Admn. overhead: 20 (50% fixed)
Solution
Output: 10,000 unit Output: 12,000 units Output: 16,000 units
50% capacity 60% capacity 80% capacity

Per unit Total Per unit Per unit Total

Total (Rs.)
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Sales Value 200 20,00,000 196 23,52,000 190 30,40,000

Material Cost 100 10,00,000 102 12,24,000 105 16,80,000

Labor Cost 30 3,00,000 30 3,60,000 30 4,80,000

Variable
Factory 18 1,80,000 18 2,16,000 18 2,88,000
Overhead

Fixed Factory
12 1,20,000 10 1,20,000 7.50 1,20,000
Overhead

Variable
Admn. 10 1,00,000 10 120,000 10 1,60,000
Overhead

Fixed OH 10 1,00,000 8.33 1,00,000 6.25 1,00,000

Total Cost 180 18,00,000 178.33 21,40,000 176.25 28,28,000

Profit 20 2,00,000 17.67 2,12,000 13.25 2,12,000

Flexible Budget problem 2-

Solution-
Output 5000 units Output 5000 units
Particulars
Rate(Rs) Amount Rate(Rs) Amount

Variable or Product Expenses:

Material 75.00 3,75,000 75.00 6,00,000

Labour 20.00 1,00,000 20.00 1,60,000

Direct Variable Overheads 6.00 30,000 6.00 48,000

Prime Cost 101.00 5,05,000 101.00 8,08,000

Factory Overheads

Variable Overheads 15.00 75,000 15.00 1,20,000

Fixed Overheads 10.00 50,000 6.25 50,000

Work Cost 126.00 6,30,000 122.25 9,78,000

Fixed Administrative Expenses 14.00 70,000 8.75 70,000

Cost of Production 140.00 7,00,000 131.00 10,48,000

Selling Expenses

Fixed 20% of Rs.20/- 8.00 40,000 5.00 40,000

Variable Cost 80% of Rs.20/- 16.00 80,000 16.00 1,28,000

Distributed Expenses
 Fixed 10% of Rs.10/- 2.00 10,000 1.25 10,000

Variable 90% of Rs.10/- 9.00 10,000 1.25 10,000

Total Cost of Sale 175.00 8,75,000 165.25 12,98,000

Flexible Budget 3-

Production at 50% Capacity 5,000 Units

Raw Material Rs.80 per unit

Direct Labor Rs.50 per unit

Direct Expenses Rs.15 per unit

Factory Expenses Rs.50,000 (50) (Fixed)

Administration Expenses Rs.60,000 (Variable)

Solution
Flexible Budget at a Capacity of

Capacity of 50% 80% 100%

Output Units 5,000 8,000 10,000

Rs. Rs. Rs.

Raw Material 4,00,000 6,40,000 8,00,000

Labor 2,50,000 40,000 50,000

Direct Expenses 75,000 1,20,000 1,50,000

Prime Cost 7,25,000 11,60,000 14,50,000

Factory Expenses 50% fixed

25,000 40,000 50,000
(50,000)

Factory Cost 7,75,000 12,25,000 15,25,000

Admin Expenses fixed 40%

24,000 24,000 24,000
(60,000)

Variable 60% 36,000 57,600 72,000

Total Cost 8,35,000 13,06,000 16,21,000

Problem No.4
A manufacturing company is operating at 75% of its full capacity. It is proposed to
offer a price reduction of 5% to 10% depending upon volume desired. Given below are the
relevant data:

Fixed overheads:
Production Rs. 14,00,000
Selling and distribution Rs. 5,00,000
Variable overheads: (at full capacity)
Selling and administration Rs. 4,40,000
Production Rs. 14,00,000
(a) Prepare a statement showing variable cost, fixed cost, total cost and profit/loss in terms of
and per unit at 75%, 85% and 100% capacity.
(b) Indicate which of the three levels is most profitable.
Solution-

Problem No.5
A Factory is currently working at 50% capacity and produces 30,000 units and also sold each
at Rs. 225 per unit. Prepare a Flexible Budget and estimate the profit of the company when it
works to 75% and 90% capacity. Assume that all units produced are sold at the same selling
price per unit as shown above.
Following information is provided to you:
(i) Variable Expenses:
Materials- Rs. 60 per unit
Labours- Rs. 40 per unit
Other Expenses- Rs. 15 per unit

(ii) Semi-variable Expenses: (at 50% capacity)

Indirect Labour- Rs. 1,50,000
Indirect Materials- Rs. 2,10,000
General Administrative Expenses- Rs. 2,70,000
Repairs and Maintenance- Rs. 1,20,000
Salesmen Salaries- Rs. 1,80,000

(iii) Fixed Expenses:

Office and Management Salaries- Rs. 5,40,000
Office and Factory Rent and Taxes- Rs. 6,00,000
Sundry Administrative Expenses- Rs. 7,20,000
Depreciation on Machinery and Furniture- Rs. 4,50,000

(iv) Semi-variable expenses remain constant up to 60% of capacity, increasing by 10%

between 60% and 80% capacity and by 20% between 80% and 100% capacity.
(v) Rate per unit of variable expenses remains same.
Solution-