McDreamy is in an industry sector which is recovering from the recent recession. The directors of...

  

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McDreamy is in an industry sector which is recovering from the recent recession. The directors of the company hope next year to be operating at 85% of capacity, although currently the company is operating at only 65% of capacity. 65% of capacity represents output of 10,000 units of the single product which is produced and sold. One hundred direct workers are employed on production for 200,000 hours in the current year The flexed budgets for the current year are as follows. Capacity level 55% 65% 75% Direct material 846,200 1,480,850 1,000,000 1,153,800 Direct Wages 1,750,000 650,000 200,000 2,019,150 703,830 Production Overhead 596,170 200,000 120,000 Selling & Distrubion OH 200,000 Administrative OH 120,000 120,000 Total 3,235,530 3,720,000 4,204,470 Profit in any year is budgeted to be 16.67% of sales. The following percentage increases in costs are expected for next year. Increase Direct material 6 Direct wage Variable production OH 7 Fixed Production OH 10 Selling & distribution OH 7.5 Administration OH 10 Requirement A (PLO 3.2, CLO 2) Prepare for next year a flexible budget statement on the assumption that the company operates at (12 marks) 85% of capacity; your statement should show both contribution and profit. McDreamy is in an industry sector which is recovering from the recent recession. The directors of the company hope next year to be operating at 85% of capacity, although currently the company is operating at only 65% of capacity. 65% of capacity represents output of 10,000 units of the single product which is produced and sold. One hundred direct workers are employed on production for 200,000 hours in the current year The flexed budgets for the current year are as follows. Capacity level 55% 65% 75% Direct material 846,200 1,480,850 1,000,000 1,153,800 Direct Wages 1,750,000 650,000 200,000 2,019,150 703,830 Production Overhead 596,170 200,000 120,000 Selling & Distrubion OH 200,000 Administrative OH 120,000 120,000 Total 3,235,530 3,720,000 4,204,470 Profit in any year is budgeted to be 16.67% of sales. The following percentage increases in costs are expected for next year. Increase Direct material 6 Direct wage Variable production OH 7 Fixed Production OH 10 Selling & distribution OH 7.5 Administration OH 10 Requirement A (PLO 3.2, CLO 2) Prepare for next year a flexible budget statement on the assumption that the company operates at (12 marks) 85% of capacity; your statement should show both contribution and profit.

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