QUESTION $3[25$ MARKS$]$

The cost sheet of a company based on a budget volume of sales of $400,000$ units per quarter is as

below:

BWP Per Unit

Direct materials $6$

Direct wages $3$

Factory overheads $(50\%$ fixed$)8$

Selling $/$ Administration $(1/3$ variable$)4\mathrm{.}5$

Selling price $24$

When the budget was discussed, it was felt that the company would be able to achieve only a

volume of $300000$ units of production and sales per quarter. The company therefore decided that

an aggressive sales promotion campaign should be launched to achieve the following improved

operations:

Proposal I:

Sell $500000$ units per quarter by spending P$250,000$ on advertising.

The factory fixed will costs will increase by P$40,000$ per quarter.

Proposal II:

Sell $600,000$ units per quarter subject to the following conditions:

An overall price reduction of$`$P$2$ per unit is allowed on all sales.

Variable selling and administration costs will increase by $6\%.$

Direct material costs will be reduced by $1\mathrm{.}5\%$ due to purchase price discounts.

The fixed factory costs will increase by P$250000$ more.

Required:

Prepare a Flexible Budget at $300000,500000$ and $600000$ units of output per quarter and

calculate the profit at each of these levels of output. $(25$ marks$)$