Flexible Budget | Tabular Method | Problems and Solutions
Arjun EP
Flexible Budget
Budget which is changed according to level of activities is known flexible budgeting.
It gives different budgeted cost for different level of activities.
A flexible budget is prepared after making difference classification of all the expenses.
They are fixed cost, variable cost and semi-variable cost.
Step for calculation flexible budget
Determine range of activity
Identification of cost behavior
Select the level of activity
Tabular Method | Output Basis |Columnar Approach
Under this method, expenses (overhead or cost) are separated into two categories.
One is variable cost and another is fixed cost.
Semi-variable costs are separated by high low method.
From this method, multilevel of output
Step for calculation flexible budget
Determine range of activity
Identification of cost behavior
Select the level of activity
Format of Flexible Budget
ABC Company Ltd
For the year ended 31st December
|
Particulars ↓ |
Level of activity |
||
|
Output, capacity or % ® |
|
|
|
|
Variable costs: |
|
|
|
|
Direct materials |
×××× |
×××× |
×××× |
|
Direct wages |
×××× |
×××× |
×××× |
|
Direct expenses |
×××× |
×××× |
×××× |
|
Manufacturing overhead |
×××× |
×××× |
×××× |
|
Repairs and maintenance |
×××× |
×××× |
×××× |
|
Indirect materials |
×××× |
×××× |
×××× |
|
Indirect wages |
×××× |
×××× |
×××× |
|
Indirect expenses |
×××× |
×××× |
×××× |
|
Total variable costs (TVC) |
×××× |
×××× |
×××× |
|
Fixed costs: |
|
|
|
|
Depreciation |
×××× |
×××× |
×××× |
|
Administrative expenses |
×××× |
×××× |
×××× |
|
Salary |
×××× |
×××× |
×××× |
|
Insurance |
×××× |
×××× |
×××× |
|
Repairs and maintenance |
×××× |
×××× |
×××× |
|
Other expenses |
×××× |
×××× |
×××× |
|
Total fixed costs (TFC) |
×××× |
×××× |
×××× |
|
Total cost (TVC + TFC) |
×××× |
×××× |
×××× |
|
Add: Profit ( % on sales or cost) |
×××× |
×××× |
×××× |
|
Sales revenue |
×××× |
×××× |
×××× |
Note: Sales revenue can be written on top viz before variable cost.
Keep In Mind (KIM)
|
There are four types of flexible budget. they are: |
|
(1) Output basis or tabular method |
|
(2) Budgeted allowance basis or formula method |
|
(3) Variance basis or method |
|
(4) Graphic method |
|
(a) There are three types of cost or expenses. they are fixed, variable and semi-variable |
|
(b) Sales revenue can be written on top viz before variable cost. |
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Accounting Equation |
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Journal Entries in Nepali |
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Journal Entries |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1A
JK Herb Processing (P) Ltd has following data on 31st December:
|
Variable cost per unit: |
Fixed cost for the period: |
||
|
Direct materials |
$15 |
Manufacturing expenses |
$100,000 |
|
Direct labour |
$12 |
Administrative expenses |
$200,000 |
|
Direct expenses |
$8 |
Selling and distribution |
$50,000 |
|
Variable manufacturing expenses |
$6 |
|
|
Required: Flexible budget for 5,000 units, 7,000 units and 9,000 units
[Answer: $555,000; $637,000 and $791,000]
SOLUTION:
Flexible Budget
ABC Company Ltd
For the year ended 31st December
|
Particulars |
Level of Activity (units) |
||
|
Output/Capacity/ % |
5,000 |
7,000 |
9,000 |
|
Variable costs: |
|
|
|
|
Direct materials [units × $15] |
75,000 |
105,000 |
135,000 |
|
Direct labour [units × $12] |
60,000 |
84,000 |
108,000 |
|
Direct expenses [units × $8] |
40,000 |
56,000 |
72,000 |
|
Variable manufacturing overhead [units × $6] |
30,000 |
42,000 |
54,000 |
|
Total variable costs (TVC) |
205,000 |
287,000 |
369,000 |
|
Fixed costs: |
|
|
|
|
Manufacturing expenses |
100,000 |
100,000 |
100,000 |
|
Administrative expenses |
200,000 |
200,000 |
200,000 |
|
Selling and distribution |
50,000 |
50,000 |
50,000 |
|
Total fixed costs (TFC) |
350,000 |
350,000 |
350,000 |
|
Total cost ( TVC+TFC) |
555,000 |
637,000 |
791,000 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1B
Cost for 6,400 units of output level is obtained from JL Cottage Industry.
|
Variable cost: |
|
Fixed cost: |
|
|
Direct materials |
$102,400 |
Administrative expenses |
$36,000 |
|
Direct labour |
$48,000 |
Selling and distribution |
$20,200 |
|
Direct expenses |
$32,000 |
Selling price per unit |
$50 |
Required: Flexible budget for 6,000 units and 7,000 units for (1) Total cost; (2) Profit
[Answer: Total cost: 6,000 units = $227,200; 7,000 units = $255,700]
Profit: 6,000 units = $72,800; 7,000 units = $94,300]
SOLUTION:
Given and working note:
DMPU = $102,400 ÷ 6,400 units = $16
DLPU = $48,000 ÷ 6,400 units = $7.5
DEPU = $32,000 ÷ 6,400 units = $5
Flexible Budget
JL Cottage Industry
For the year ended 31 December 20XX
|
Particulars |
Level of Activity (units) |
||
|
Output/Capacity/ Base |
6,400 base |
6,000 |
7,000 |
|
Variable costs: |
|
|
|
|
Direct materials [units × $16] |
102,400 |
96,000 |
112,000 |
|
Direct labour [units × $7.5] |
48,000 |
45,000 |
52,500 |
|
Direct expenses [units × $5] |
32,000 |
30,000 |
35,000 |
|
Total variable costs (TVC) |
182,400 |
171,000 |
199,500 |
|
Fixed costs: |
|
|
|
|
Administrative expenses |
36,000 |
36,000 |
36,000 |
|
Selling and distribution |
20,200 |
20,200 |
20,200 |
|
Total fixed costs (TFC) |
56,200 |
56,200 |
56,200 |
|
Total cost ( TVC+TFC) |
$238,600 |
$227,200 |
$255,700 |
|
Sales revenue (units × $50) |
$320,000 |
$300,000 |
$350,000 |
|
Profit (sales – total cost) |
$81,400 |
$72,800 |
$94,300 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1C
Om Plastic Industries has given information at 10,000 units of output level:
|
Particulars |
Per unit |
Fixed manufacturing cost $50,000 |
$5.00 |
|
Direct materials |
$35.00 |
Selling expenses (10% fixed) |
$6.50 |
|
Direct labour |
$12.50 |
Administrative expenses (100% fixed) |
$2.50 |
|
Indirect expenses |
$10.00 |
Distribution expenses (20% fixed) |
$3.50 |
|
Selling price per unit |
$100.00 |
|
|
Additional information:
Below 10,000, units selling price rise by 1%. But above 10,000, selling price falls by 2%.
Required: (a) Flexible budget for 6,000 units, 8,000 units and 12,000 units; (b) Profit or loss of the output level
[Answer: TVC = $396,900; $529,200; $793,800; Fixed cost = $88,500;
Total cost = $485,400; $617,700; $882,300;
Profit = $120,600; $190,300; $293,700]
SOLUTION:
Given and working note:
Calculation for 10,000 units (based)
|
Activities |
Cost basis |
VCPU |
Variable cost |
TC – VC = Fixed cost |
||
|
Direct materials |
Variable |
|
35.00 |
350,000 |
– |
|
|
Direct labour |
Variable |
|
12.50 |
125,000 |
– |
|
|
Indirect expenses |
Variable |
|
10.00 |
100,000 |
− |
|
|
Fixed Mfg. cost |
Fixed |
− |
|
− |
given |
50,000 |
|
Selling expenses |
Semi-variable |
6.5 × 90% = |
5.85 |
58,500 |
10,000 × $6.5 @10% = |
6,500 |
|
Administrative |
Fixed |
− |
|
− |
10,000 × $2.5 = |
25,000 |
|
Distribution |
Semi-variable |
3.5 × 80% = |
2.80 |
28,000 |
10,000 × $3.5 @20% = |
7,000 |
|
Total |
|
|
$66.15 |
|
|
$88,500 |
Flexible Budget
Om Plastic Industries
|
Particulars |
Level of Activity (units) |
||
|
|
6,000 |
8,000 |
12,000 |
|
Variable costs: |
|
|
|
|
Direct materials (output × $35) |
2,10,000 |
2,80,000 |
4,20,000 |
|
Direct labour (output × $12.5) |
75,000 |
1,00,000 |
1,50,000 |
|
Indirect expenses (output × $10) |
60,000 |
80,000 |
1,20,000 |
|
Selling expenses (output × $5.85) |
35,100 |
46,800 |
70,200 |
|
Distribution (output × $2.8) |
16,800 |
22,400 |
33,600 |
|
Total variable costs (TVC) |
3,96,900 |
5,29,200 |
7,93,800 |
|
Fixed costs: |
|
|
|
|
Fixed manufacturing cost |
50,000 |
50,000 |
50,000 |
|
Selling expenses |
6,500 |
6,500 |
6,500 |
|
Administrative |
25,000 |
25,000 |
25,000 |
|
Distribution |
7,000 |
7,000 |
7,000 |
|
Total fixed costs (TFC) |
88,500 |
88,500 |
88,500 |
|
Total cost ( TVC+TFC) |
$4,85,400 |
$6,17,700 |
$8,82,300 |
|
Sales revenue (units × $101; $101; $98) |
$6,06,000 |
$8,08,000 |
$11,76,000 |
|
Profit (sales – total cost) |
$1,20,600 |
$1,90,300 |
$2,93,700 |
1% increase means = 100 + 1 = $101
2% decrease means = 100 – 2 = $98
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1D
ABC Manufacturing Company is running on at 60% capacity for 8,400 output units. Other data is:
|
Activities |
Rate per unit |
|
Direct materials (120% variable) |
$20 |
|
Direct wages (100% variable) |
$15 |
|
Direct expenses (100% variable) |
$12 |
|
Works overhead (40% fixed) |
$10 |
|
Office expenses (100% fixed) |
$10 |
|
Selling expenses (70% fixed) |
$6 |
Required: Flexible budget by tabular method for 60% base, 50% and 75% capacity
[Answer: TVC = $493,920; $411,600; $617,400; TFC = $152,880;
TC = $646,800; $564,480; $770,280]
SOLUTION:
Given and working note:
|
At 60% capacity, output |
= given |
= 8,400 units |
|
At 50% capacity, output |
= 8,400 × 50% ÷ 60% |
= 7,000 units |
|
At 75% capacity, output |
= 8,400 × 75% ÷ 60% |
= 10,500 units |
|
At 120% of direct material |
= $20 @ 120% |
= $24 |
Flexible Budget
ABC Manufacturing Company
|
Particulars |
Level of Activity (units) |
||
|
|
60% = 8,400 |
50% = 7,000 |
75% = 10,500 |
|
Variable costs: |
|
|
|
|
Direct materials (output × $20 @ 120%) |
201,600 |
168,000 |
252,000 |
|
Direct labour (output × $15 @ 100%) |
126,000 |
105,000 |
157,500 |
|
Direct expenses (output × $12 @ 100%) |
100,800 |
84,000 |
126,000 |
|
Works overhead (output × $10 @ 60%) |
50,400 |
42,000 |
63,000 |
|
Selling expenses (output × $6 @ 30%) |
15,120 |
12,600 |
18,900 |
|
Total variable costs (TVC) |
493,920 |
411,600 |
617,400 |
|
Fixed costs: |
|
|
|
|
Works overhead (8,400 × $10 @ 40%) |
33,600 |
33,600 |
33,600 |
|
Office expenses (8,400 × $10 @ 100%) |
84,000 |
84,000 |
84,000 |
|
Selling expenses (8,400 × $6 @70%) |
35,280 |
35,280 |
35,280 |
|
Total fixed costs (TFC) |
152,880 |
152,880 |
152,880 |
|
Total cost ( TVC+TFC) |
$646,800 |
$564,480 |
$770,280 |
|
Cost per unit = TC ÷ Output |
$77.00 |
$80.64 |
$73.36 |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1E
Gold Polymers (P) Ltd has following information:
Flexible Budget
|
Particulars $ Capacity “ |
45% |
60% |
75% |
|
Variable cost: |
|
− |
|
|
Indirect labour |
|
36,000 |
|
|
Indirect expenses |
|
21,000 |
|
|
Semi variable expenses: |
|
− |
|
|
Power (40% fixed) |
|
35,000 |
|
|
Repairs (30% variable) |
|
25,000 |
|
|
Fixed cost: |
|
− |
|
|
Salary |
|
50,000 |
|
|
Rent |
|
20,000 |
|
Total labour hours at 60% capacity is 60,000 hours
Required: (1) Flexible budget for 45%, 60% and 75% capacity; (2) Overhead rate based on labour hour
[Answer: TVC = $64,125; $85,500; $106,875;
Fixed cost = $101,500; Total cost = $165,625; $187,000; $208,375;
Overhead rate = $3.68; $3.12; $2.78]
SOLUTION:
Given and working note:
|
Indirect labour at 60%, amount |
= given |
= $36,000 |
|
Indirect labour at 45%, amount |
= 36,000 × 45% ÷ 60% |
= $27,000 |
|
Indirect labour at 75%, amount |
= 36,000 × 75% ÷ 60% |
= $45,000 |
|
Indirect expenses at 60%, amount |
= given |
= $21,000 |
|
Indirect expenses at 45%, amount |
= 21,000 × 45% ÷ 60% |
= $15,750 |
|
Indirect expenses at 75%, amount |
= 21,000 × 75% ÷ 60% |
= $26,250 |
Again,
|
|
Variable cost |
Fixed cost |
|
Power at 60%, total amount = $35,000 |
35,000 @ 60% = 21,000 |
35,000 @ 40% = 14,000 |
|
Repair at 60%, total amount = $25,000 |
35,000 @ 30% = 10,500 |
35,000 @ 70% = 24,500 |
Flexible Budget
Gold Polymers (P) Ltd
|
Particulars |
Level of Activity (units) |
||
|
Level |
45% |
60% |
75% |
|
Variable costs: |
|
|
|
|
Indirect labour |
27,000 |
36,000 |
45,000 |
|
Indirect expenses |
15,750 |
21,000 |
26,250 |
|
Power |
15,750 |
21,000 |
26,250 |
|
Repairs |
5,625 |
7,500 |
9,375 |
|
Total variable costs (TVC) |
64,125 |
85,500 |
106,875 |
|
Fixed costs: |
|
|
|
|
Power |
14,000 |
14,000 |
14,000 |
|
Repairs |
17,500 |
17,500 |
17,500 |
|
Salary |
50,000 |
50,000 |
50,000 |
|
Rent |
20,000 |
20,000 |
20,000 |
|
Total fixed costs (TFC) |
101,500 |
101,500 |
101,500 |
|
Total cost ( TVC+TFC) |
$165,625 |
$187,000 |
$208,375 |
|
Labour hours |
45,000 |
60,000 |
75,000 |
|
Overhead rate = Total cost ÷ LH |
$3.68 |
$3.12 |
$2.78 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1F
YK Company has following Income Statement:
|
Particulars |
Actual |
Static budget |
|
|
|
Amount |
Amount |
|
|
Units sold |
110 |
100 |
|
|
Sales |
32,000 |
30,000 |
|
|
Less: Variable expenses |
19,200 |
18,000 |
|
|
Contribution margin |
12,800 |
12,000 |
|
|
Less: Fixed expenses |
6,800 |
7,000 |
|
|
Operating income |
6,000 |
5,000 |
|
Required: (1) Flexible budget for 110 units based on static budget; (2) Reconciliation between static budget and actual income
[Answer: Operating income = $6,200;
SOLUTION
Given and working note:
Selling price per unit (SPPU) = Static budget ÷ Sold units = $30,000 ÷ 100 units = $300
Variable cost per unit (VCPU) = Static budget ÷ Sold units = $18,000 ÷ 100 units = $180
Income Statement
|
Particulars |
Actual |
Flexible Budget |
Static budget |
|
Units |
110 units |
110 units |
100 units |
|
|
Amount |
Amount |
Amount |
|
Sales (Units × $300) |
32,000 |
33,000 |
30,000 |
|
Less: Variable expenses (Units × $180) |
19,200 |
19,800 |
18,000 |
|
Contribution margin |
12,800 |
13,200 |
12,000 |
|
Less: Fixed expenses |
6,800 |
7,000 |
7,000 |
|
Operating income |
$6,000 |
$6,200 |
$5,000 |
Reconciliation Statement
|
Particulars |
Amount |
|
Operating income as per static |
5,000 |
|
Add: Increase in profit 10 units × ($300 SSPU – $180 VCPU) |
1,200 |
|
Income as per flexible budget |
6,200 |
|
Less: Decrease due to selling price in actual budget |
(200) |
|
Operating income as per actual |
$6,000 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1G
SM Metal Industries has given data for current month:
|
Activities |
Variable cost per unit in $ |
Fixed cost in $ |
|
|
Revenue |
150.00 |
− |
|
|
Cost of material |
72.50 |
− |
|
|
Wages and salary |
− |
200,000 |
|
|
Office expenses |
4.50 |
12,000 |
|
|
Rent |
− |
100,000 |
|
|
Sundry expenses |
9.00 |
20,000 |
|
Actual extracted information of Income Statement for 9,900 units
|
Particulars |
Amount |
|
|
|
Revenue |
14,92,000 |
Office expenses |
58,000 |
|
Cost of material |
7,32,000 |
Rent |
1,00,000 |
|
Wages and salary |
1,95,000 |
Miscellaneous |
1,20,000 |
Required: (1) Planning income statement for 10,000 units; (2) Flexible Income statement for 9,900 units
(3) Flexible income statement for performance report
[Answer: (1) Net income: Planning = $308,000; (2) Flexible = $301,600;
(3) Sales = $7,000 F; Total expenses = ($21,600) U; Net loss = ($14,600) U
SOLUTION:
Given and working note:
Office expenses = $12,000 fixed + (10,000 units × $4.5) = $57,000
Office expenses = $12,000 fixed + (9,900 units × $4.5) = $56,550
Sundry expenses = $20,000 fixed + (10,000 units × $9) = $110,000
Sundry expenses = $20,000 fixed + (9,900 units × $9) = $109,100
Income Statement
Planning and Flexible Budget
|
Particulars |
|
Planning Budget |
Flexible Budget |
|
|
Units |
→ |
10,000 units |
9,900 units |
|
|
|
|
|
Amount |
Amount |
|
Sales |
(Units × $150) |
(A) |
$15,00,000 |
$14,85,000 |
|
Expenses: |
|
|
|
|
|
Cost of material |
(Units × $72.5) |
|
7,52,000 |
7,17,750 |
|
Wages and salary |
|
|
2,00,000 |
2,00,000 |
|
Office expenses |
(y = a+bx) |
|
57,000 |
56,550 |
|
Rent |
|
|
1,00,000 |
1,00,000 |
|
Sundry expenses |
(y = a+bx) |
|
1,10,000 |
1,09,100 |
|
Total expenses |
|
(B) |
$11,92,000 |
$11,83,400 |
|
Net income (A−B) |
|
$3,08,000 |
$3,01,600 |
|
Income Statement
Flexible Budget for Performance
|
Particulars |
|
Planning Budget |
Flexible Budget |
Actual Result |
Revenue & Spending Variances |
|
|
|
10,000 units |
9,900 units |
|
|
|
|
|
a |
b |
c |
c – b |
|
|
|
Amount |
Amount |
|
|
|
Sales |
(A) |
$15,00,000 |
$14,85,000 |
$14,92,000 |
7,000 F |
|
Expenses: |
|
|
|
|
|
|
Cost of material |
|
7,25,000 |
7,17,750 |
7,32,000 |
(14,250) U |
|
Wages and salary |
|
2,00,000 |
2,00,000 |
1,95,000 |
5,000 F |
|
Office expenses |
|
57,000 |
56,550 |
58,000 |
(1,450) U |
|
Rent |
|
1,00,000 |
1,00,000 |
1,00,000 |
Nil |
|
Sundry expenses |
|
1,10,000 |
1,09,100 |
1,20,000 |
(10,900) U |
|
Total expenses |
(B) |
$11,92,000 |
$11,83,400 |
$12,05,000 |
(21,600) U |
|
Net income (A−B) |
|
$3,08,000 |
$3,01,600 |
$2,84,000 |
(14,600) U |
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|
Problems and Answers of Flexible Budget |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1A
Following given data are based on 10,000 units by XYZ Company:
|
Direct materials |
$15 per unit |
Fixed cost for the period: |
|
|
Direct labour |
$12 per unit |
Manufacturing expenses |
$300,000 |
|
Indirect expenses |
$8 per unit |
Administrative expenses |
$250,000 |
|
Variable manufacturing cost |
$6 per unit |
Selling and distribution |
$100,000 |
Required: Flexible budget for 9,000 units, 15,000 units and 17,000 units; (a) Total cost; (b) Cost per unit
[Answer: (1) $10,19,000; $12,65,000 and $13,47,000]
(2) $113.22; $84.33 and $79.24]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1B
The extracted data are given below:
|
Volume of output |
50,000 units |
100,000 units |
|
Total cost |
$500,000 |
$800,000 |
Required: (a) Variable cost per unit by high low method; (b) Fixed cost;
(c) Budget for the production volume of 70,000 units and 110,000 units
[Answer: (1) $6; (2) $200,000; (3) $620,000 and $860,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1C
Magic Polymers (P) Ltd manufactures synthetic footwear. Following data are related to casual slippers:
|
Particulars |
Per unit ($) |
|
Direct materials |
30 |
|
Direct labour |
20 |
|
Fixed manufacturing expenses ($50,000) |
5 |
|
Office expenses (80% fixed) |
10 |
|
Selling and distribution (30% fixed) |
15 |
|
Selling price per unit |
125 |
Required: Flexible budget cost for 6,000 units, 8,000 units and 15,000 units showing:
(a) Total cost with variable cost and fixed cost; (b) Profit
[Answer: (a) Variable cost = $375,000; $500,000; $937,500;
Fixed cost = $175,000; TC = $550,000; $675,000 and $11,12,500;
(b) $200,000; $325,000 and $762,500]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1D
The following extracted expenses are for normal capacity of 2,000 units is given by EM Company:
|
Maintenance expenses |
$100,000 (60% fixed and 40% variable) |
|
Indirect expenses |
$50,000 (50% fixed and 50% variable) |
|
Supervision & inspection |
$200,000 (30% fixed and 70% variable) |
Required: Total cost at 1,800 units and 2,400 unit of output.
[Answer: For 1,800 units: $96,000; $47,500 and $186,000;
For 2,400 units: $108,000; $55,000 and $228,000]
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