FLEXIBLE BUDGET ABC Inc. employs 15 production workers, working 8 hours a day, 22 days per month, at a normal capacity of 8,400 units. The direct labor wage rate is Rs. 75 per hour; direct materials are budgeted at Rs. 80 per unit produced. Fixed factory overhead is Rs. 90,060; supplies average Rs. 0.75 per direct labor hour; indirect labor is 1/6 of direct labor cost; and other charges are Rs. 0.85 per direct labor hour. 

Required:

a. Prepare the flexible budget for one month at 60%, 80%, and 100% of normal capacity, showing itemized manufacturing costs, total manufacturing cost, and total manufacturing cost per unit.

b. Why average unit cost has an inverse relationship with level of output. Justify your answer with numerical values.

Answer rating: 100% (QA)

Solution a Prepare the flexible budget for one month at 60 80 and 100 of normal capacity showing ite... View the full answer