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Section A - Answer 1 question from 2. Both questions carry equal marks Question 1 Binky Ltd manufactures one product, the Whirl. Currently it is operating at a normal level of activity of 60% which represents an output of 10080 units. However the sales director believes that a realistic forecast for the next budget period would be a level of activity of 45% Information: 60% 70% 0% Direct materials 70560 82320 94080 Direct wages 50400 67200 Production overhead 50240 55280 60320 Administration overhead 40000 Selling overhead 53320 60040 66760 Total cost 264520 296440 328360 Profit is 25% of selling price. 58800 40000 40000 Required: a. Prepare a budget based on a level of activity of 45% which should show the contribution which can be expected. 35 marks b. Explain responsibility accounting 10 marks c. Explain the difference between fixed and flexible budgets, and discuss why a company might decide to choose a flexible budgeting system 15 marks Total: 60 marks