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.
Methods of flexible budget
Tabular method
Segregation method
Budgeted allowance method
Overhead variance method
Step for calculation flexible budget
Determine range of activity
Identification of cost behavior
Select the level of activity
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Brief Questions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 1
The following extracted information is given at 80% of capacity by EP Company:
Sales units 3,600
Selling price per unit $10
Variable cost per unit $4
Fixed cost $10,000
Required: Flexible Budget at 90% capacity
[Answer: Net income = $11,600 and $14,300]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 2
The following extracted information is given at 90% of capacity by AM Company:
Sales units 3,600
Selling price per unit $120
Variable cost per unit $40
Fixed cost $150,000
Required: Flexible Budget at 100% capacity
[Answer: Net income = $138,000 and $170,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 3
The extracted data is given below by PA Company:
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
[Answer: (1) $6; (2) $200,000;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 4
The following expenses are for normal capacity of 2,000 units by MA Company:
Repairs and maintenance $100,000 (60% fixed and 40% variable)
Required: (a) Variable cost per unit; (b) Total cost at 1,800
[Answer: VCPU = $20; Total cost = $96,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
BQ: 5
The following extracted information is given to you EG Company:
Actual overhead incurred |
$90,000 |
Fixed cost per unit |
$15 |
Standard fixed cost |
$50,000 |
Actual quantity |
2,500 units |
Variable cost per unit |
$10 |
Standard quantity |
2,300 units |
Required: Three overhead variances
[Answers: SV = $15,000 U; EV = $2,000 U; CV = $15,500 U;
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Descriptive Questions
TABULAR METHOD
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 1
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
DQ: 2
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
DQ: 3
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
DQ: 4
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]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 5
Costs for output level of 6,400 units are given below by OP Company:
Variable cost: |
|
Fixed cost |
|
Direct labour cost |
$102,400 |
Administrative cost |
$20,400 |
Direct material cost |
$49,600 |
Selling and distribution |
$3,600 |
Direct expenses |
$3,200 |
|
|
Unit selling price $35
Required: (1) Flexible budget for 8,000 units; (2) Amount of profit at 8,000 units
[Answers: Variable cost = $194,000; Fixed cost = $24,000;
Total cost = $218,000; Profit = $62,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 6
The cost of 10,000 units of product is given below by BA Company:
Direct material |
$40,000 |
Repair and maintenance |
$12,000 |
Direct wages |
$60,000 |
Insurance |
$15,000 |
Direct expenses |
$20,000 |
|
|
Additional information:
(a) The difference in cost for repair and maintenance is $0.50 per unit between 10,000 and 9,000 units of output.
(b) Insurance cost a $9,000 units volume amounted to $14,000
Required: Flexible budget for 12,000 units
[Answer: Total cost = $174,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 7
The following expenses for a month capacity of 10,000 units are given to you with other data by BD Company:
Direct materials |
$400,000 |
Fixed cost: |
|
|
Direct labour |
$300,000 |
Salaries 100% fixed |
$ 250,000 |
|
Prime cost |
$700,000 |
Depreciation (fixed) |
$50,000 |
|
|
||||
Mixed overhead: |
||||
Indirect expenses 30% variable & 70% fixed |
$100,000 |
|||
Maintenance expenses 60% variable & 40% fixed |
$300,000 |
|||
Power and fuel variable 70% & fixed 30% |
$400,000 |
|||
Prepare flexible budget for 80% and 90% output to be attained in the next month
[Answers: Variable cost: $984,000 and $11,07,000;Fixed cost = $570,000;
Total cost: 80% = $15,54,000; 90% = $16,77,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 8
BH Manufacturing Company manufactures a single product of which market demand exists for additional quantity.
At present the company is utilizing only 70% of the plant capacity and the following data are available:
Sales revenue |
$35,000 |
Fixed cost |
$10,000 |
Selling price per unit |
$10 |
Step fixed cost |
$6,000 |
Variable cost per unit |
$4 |
|
|
Additional information:
(a) At above 70% working capacity, the selling price falls by 10%
(b) The step fixed remains unchanged at 60% to 79% capacity but will increase by $1,000 between 80% to 100 % capacity.
Required: Flexible budget for 80% and 90% of capacity
[Answers: Total cost at 80% = $33,000; 90% = $35,000,
Profit at 80% = $3,000; 90% = $5,500]
SEGREGATION METHOD
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 9 old 3
Following information is given below by ABC Manufacturing Company:
Particulars |
10,000 units |
25,000 units |
Direct material |
$200,000 |
$500,000 |
Direct labor |
$300,000 |
$750,000 |
Indirect expenses |
$600,000 |
$825,000 |
Depreciation |
$80,000 |
$80,000 |
Required: (a) Variable cost per unit; (b) Budgeted cost for 8,000 units, 15,000 units and 28,000 units by tabular method
[Answer: (a) $15; (b) $10,50,000; $15,05,000 and $23,50,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 10 old 9
Costs at two different levels of output are as follows BE Company:
Activities |
|
|
Output in units |
3,000 units |
5,000 units |
Direct material |
$15,000 |
$25,000 |
Direct labour |
$30,000 |
$50,000 |
Manufacturing overhead |
$16,000 |
$20,000 |
Office overhead |
$8,000 |
$10,000 |
Selling overhead |
$3,500 |
$4,500 |
Selling price per unit |
$25 |
$25 |
Required: Flexible budget for 4,000 units by showing profit
[Answer: Variable cost = $74,000; Fixed cost = $17,000;
Total cost = $91,000; Profit = $9,000]
VARIANCES
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 11
The information relating to overhead costs are given by BJ Company:
Standard capacity based on normal capacity 5,000 hours: |
Actual hours worked |
4,300 hours |
|
Fixed overhead |
$5,000 |
Actual overhead incurred |
|
Variable overhead |
$5,000 |
Fixed overhead |
$5,000 |
Total |
$10,000 |
Variable overhead |
$4,000 |
|
|
Total |
$9,000 |
Standard hours |
4,250 hours |
|
|
Required: Three variances
[Answer: Spending = ($300) F; Efficiency = $50 U;
Capacity = $750 U] *FCPU = $1; VCPU = $1
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 12
The compiled records of KL Company are as follows:
Activities |
Budgets (standard) |
Actual |
|
Output (in unit) |
10,000 |
12,000 |
|
Hours |
5,000 |
5,500 |
|
Fixed overhead cost |
$5,000 |
$5,000 |
|
Variable overhead cost |
$20,000 |
$27,500 |
|
Normal output is 5,000 units
Calculate: Three overhead Variances
[Answers: SV = $5,500 U; EV = ($2,000) F; CV = ($1,000) F;
Or SV = $5,500 U; EV = $2,000 U; CV = Nil;
* SQ = Actual output x Std hours ÷ Std output = 6,000 hours
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 13
The flexible budgeting data and other information have been presented below by BK Company:
Budgeted allowance = $400,000 + $5 x DLH |
|
Normal Capacity |
100,000 DLH |
Standard time per unit of output |
2 DLH |
Actual output |
52,000 units |
Actual hours worked |
98,000 DLH |
Actual overhead paid |
$865,500 |
Required: Overhead three variances
[Answers: SV = $24,500 (F); EV = $30,000 (F); CV = $16,000 (F)]
*SQ = 52,000 × 2DLH = 104,000
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 14
The details regarding manufacturing overhead cost and other relevant information are below by BL Company:
Actively level |
50,000 DLH |
100,000 DLH |
Manufacturing cost |
$300,000 |
$400,000 |
Other information: |
|
|
Normal capacity |
100,000 DLH |
|
Actual DLH (standard) produced |
102,000 DLH |
|
Actual labour worked and paid |
98,000 DLH |
|
Actual overhead paid |
$420,500 |
Required: (1) Amount of fixed manufacturing cost; (2) Overhead three variance
[Answers: FMC = Total cost – VCPU × Output = $200,000;
SV = $24,500 (A); EV = $8,000 F; CV = $4,000 (F)]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 15
Bionic Energy (P) Ltd at has normal capacity of 5,000 hours and other information:
Standard capacity |
|
Actual capacity |
|
Fixed overhead |
$100,000 |
Fixed overhead |
$80,000 |
Variable overhead |
$80,000 |
Variable overhead |
$90,000 |
Standard quantity (hours) |
4,250 hours |
Actual worked hours |
4,300 MH |
Required: (a) Spending variance; (b) Efficiency variance; (c) Capacity variance
[Answer: (a) $1,200 U; (b) $800 U; (c) $15,000 U]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 16
The flexible budgeting data regarding Sun Power (P) Ltd are presented below:
Budgeting Formula |
= Fixed cost + (VCPU × Level of activity) |
|
|
= 600,000 + $15 per DLH × Hours worked |
|
|
||
Other data |
|
|
Normal capacity |
60,000 hours |
|
Actual hours worked (DLH) |
64,000 hours |
|
Standard hours produced |
56,000 hours |
|
Actual expenses incurred |
$13,50,000 |
|
Required: (a) Spending variance; (b) Efficiency variance; (c) Capacity variance
[Answer: (a) ($210,000) F; (b) $120,000 U; (c) $40,000 U]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 17
The extracted data is given below by Eshna Exports (P) Ltd:
Details |
Budgeted/Standard |
Actual |
Output (quantity or yield) |
12,000 units |
15,000 units |
Machine hours (MH) |
6,000 hours |
7,000 hours |
Fixed overhead |
$180,000 |
$200,000 |
Variable overhead |
$360,000 |
$450,000 |
Normal output 6,000 hours
Required: (a) Spending variance; (b) Efficiency variance; (c) Capacity variance
[Answer: (a) $50,000 U; (b) ($30,000) F; (c) ($45,000) F]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 18
Vipul Company Ltd operates the standard costing system and showed following data for overhead:
Normal capacity and actual worked hours |
10,000 DLH |
Standard output per direct labour hour |
4 units |
Actual production |
44,000 units |
Actual overhead incurred |
$95,000 |
Factory overhead |
$40,000 |
Standard variable cost per unit |
$6 per hour |
Required: Calculate three variances
[Answer: SV = (5,000) F; EV = (6,000) F; CV = (4,000) F]
* SQ = Actual output × (Standard hours ÷ Standard output) = 11,000 hours]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 19
DK Company has following extracted information related to variances:
Normal output |
20,000 units |
Actual output |
4,200 units |
Standard fixed cost |
$80,000 |
Actual worked hours |
2,080 hours |
Total cost per unit |
$100 |
Actual fixed cost |
$100,000 |
Standard output per hour |
2 units |
Actual variable cost |
$108,000 |
Required: (a) Spending variance; (b) Efficiency variance; (c) Capacity variance
[Answer: SV = 3,200 U; EV = (1,200) F; CV = (4,000) F]
* SQ = 4200 × 1 ÷ 2 = 2,100 hours; *VCPU = 100 – 40 = 60]
BUDGETED ALLOWANCE
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
DQ: 20
The repair and maintenance expenses of a workshop along with operating machine hours are as follows:
Machine hours |
Repair and maintenance expenses ($) |
|
150 |
350 |
|
250 |
450 |
|
350 |
550 |
|
450 |
650 |
|
550 |
750 |
|
Required: (a) Variable cost per machine hours; (b) Fixed cost of the workshop
(c) Estimated repair and maintenance for 475 operating machine hours by using y = a + bx
[Answer: (1) VCPU = $1; (2) Fixed cost = $200; (3) Total cost = $675]
Analytical Questions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 1
JB Flour Mill makes different products from wheat. Following data are related to product suji for one month production:
Particulars /Output in kg → |
15,000 kg |
20,000 kg |
|
Direct materials |
$300,000 |
$400,000 |
|
Direct labour |
$90,000 |
$120,000 |
|
Production overhead (50% of direct labour) |
– |
– |
|
Depreciation |
$20,000 |
$20,000 |
|
Repairs and maintenance |
$26,000 |
$32,000 |
|
Selling price per kg $40
Required: (1) Flexible budget for 10,000 kg and 25,000 kg showing total cost and profit
(2) Explain is short any three advantages of flexible budget.
[Answer: (1) FC = $28,000; Total cost = $330,000 and $783,000;
Profit = $70,000 and $217,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 2
ABC Manufacturing Company currently is working at 60% capacity for 6,000 units; other data are:
Particulars |
50% |
60% |
70% |
Variable cost: |
|
|
|
Indirect materials |
|
300,000 |
|
Indirect labour |
|
180,000 |
|
Semi-variable cost: |
|
|
|
Power and electricity (40% fixed) |
|
90,000 |
|
Production expenses (70% fixed, 30% variable) |
|
240,000 |
|
Repair and maintenance (20% variable) |
|
30,000 |
|
Fixed cost: |
|
|
|
Depreciation |
|
165,000 |
|
Administrative |
|
150,000 |
|
Total |
|
11,55,000 |
|
Required: (for 50%; 60% and 70% capacity)
Flexible budget showing variable cost and fixed cost
Total cost per unit
[Answer: (1) VC = $510,000; $612,000 and $714,000; FC = $543,000;
(2) Cost per unit = $210.60; $179.57]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
AQ: 3
SK Food Industries has given data for current month:
Activities |
Variable cost per unit ($) |
Fixed cost ($) |
|
Revenue |
100 |
− |
|
Cost of material |
35 |
− |
|
Wages and salary |
− |
100,000 |
|
Office expenses |
3 |
10,000 |
|
Rent |
− |
50,000 |
|
Sundry expenses |
5 |
15,000 |
|
Actual Income Statement information for 9000 units
Particulars |
Amount ($) |
|
Revenue |
750,000 |
|
Cost of material |
350,000 |
|
Wages and salary |
100,000 |
|
Office expenses |
30,000 |
|
Rent |
50,000 |
|
Sundry expenses |
60,000 |
|
Required: (1) Planning income statement for 10,000 units; (2) Flexible income statement for 9,000 units
(3) Flexible income statement for performance report
[Answer: (1) Net income: Planning = $395,000; (2) Flexible = $338,000;
(3) Sales = ($150,000) U; Total expenses = ($28,000) U; Net loss = ($178,000) U
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