(a) What are the differences between a fixed budget and a flexible budget? In what ways are fixed budgets and flexible budgets useful for planning and control?

(b) In its budgets for the period ahead, a company is considering two possible sales forecasts for its three products:

Required:
Take each of the possible sales forecasts in turn.
(i) For each forecast, calculate the sales budget that you would recommend to maximize profits, (ii) What profit would you expect from each sales budget?

In order to answer these questions you must assume that the three products must be sold either all at the higher prices or all at the lower prices.

(i) Sales units Product A 22,000 Product B Product C 40,000 6,000 Selling price per unit 10.00 6.00 7.50 (ii) Sales units 30,000 50,000 7,000 Selling price per unit 9.00 5.70 7.10