Comtrex Company Ltd is preparing a budget for the next fiscal period. 120 000 labour hours will be 100% level of expected productive time, but a flexible budget at 90%, 110% and 120% is required so that cost allowances can be set for these possible levels.

Budgeted costs details

Fixed Costs per annum $

Depreciation 22 000

Staff salaries 43 000

Insurances 9 000

Rent and Rates 12 000

Variable Costs

Power $0.30 per direct labour hour

Consumables $0.05 per direct labour hour

Direct labour $3.50 per direct labour hour

Semi-Variable Costs

Analysis of past records, adjusted to eliminate the effect on inflation shows the following:

Direct labour hours Total Semi-variable cost

$

Last year 6 110 000 330 000

Year 5 100 000 305 000

Year 4 90 000 280 000

Year 3 87 000 272 500

Year 2 105 000 317 500

Year 1 80 000 255 000

Required:

A. Prepare a Cost Budget (Flexible) at 100% and flexed to show cost allowances at 90%, 110% and 120%

B. The Comtrex Company Ltd has the following budgeted sales for the next six-month period:

Month Unit Sales

June 90,000

July 120,000

August 210,000

September 150,000

October 180,000

November 120,000

There were 30,000 units of finished goods inventory at the beginning of June. Plans are to have

an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced. Each pound of material costs $8.

Inventory levels for materials are equal to 30% of the needs for the next month. Materials

inventory on June 1 was 15,000 pounds

Required:

Prepare production budgets for July, August and September.