The cost sheet of a company based on a budget volume of sales of 400,000 units per
Question:
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) 4.5
Selling price 24
When the budget was discussed, it was felt that the company would be able to achieve only a volume of 300 000 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 500 000 units per quarter by spending P250,000 on advertising.
The factory fixed will costs will increase by P40,000 per quarter.
Proposal II:
Sell 600,000 units per quarter subject to the following conditions: An overall price reduction of`P2 per unit is allowed on all sales. Variable selling and administration costs will increase by 6%. Direct material costs will be reduced by 1.5% due to purchase price discounts. The fixed factory costs will increase by P250 000 more.
Required:
Prepare a Flexible Budget at 300 000, 500 000 and 600 000 units of output per quarter and calculate the profit at each of these levels of output.
Expert Answer:
To prepare a flexible budget and calculate the profit at different levels of output we need to determine the costs for each level of production based on the given information Lets calculate the costs ... View the full answer
