Question

Dandy Manufacturers company Ltd makes of product Y has prepared it's budget for 2018, based on two activity levels of 80% and 100% with production Units of 2,800 and 3,500 units respectively.

The budget is as follows:
                                                    80%                      100%
Sales                                         $224,000             $280,000
Direct Material                        $84,000               $105,000
Direct Labour                          $50,400               $63,000
Production overhead            $48,800                $53,000

The company's actual result for the period is as follows:
Sales in Units                                                    3,150 Units
Sales                                                                $252,000
Direct material                                               $94,000
Direct labour                                                   $60,000
Overhead (60% of amount is fixed)           $50,000

Required:
Prepare a flexible budget for a production level of 70% and 90% and compare the flexible budget at 90% level of activity with the actual result.
        

Answer 1

		Unit Sales Price=224000/2800	$            80.00	(280000/3500)
		Direct Material per unit	$30.00	((8400/2800)
		Direct Labor per unit	$18.00	(63000/3500)	(50400/2800)
		FIXED PRODUCTION OVERHEAD	$31,800	(53000*60%)
		Variable Production overhead at100%	$21,200	(53000-31800)
		Variable Overhead per unit	$6.06	(21200/3500)
			ACTIVITY LEVEL
		BUDGET	100%	80%
	A	Sales in units	3500	2800
	B	Unit Sales Price	$            80.00	$             80.00
	C=A*B	Sales Revenue	$        280,000	$         224,000
	D	Direct Material	$105,000	$84,000
	E	Direct Labor	$63,000	$50,400
	F	Fixed Production Overhead	$31,800	$31,800
	G	Variable Overhead	$21,200	$17,000	(48800-31000)
	H=F+G	Total Production Overhead	$53,000	$48,800
	I=D+E+H	Total Cost	$221,000	$183,200
		FLEXIBLE BUDGET
			ACTIVITY LEVEL
			70%	90%	ACTUAL	Actual -Budgeted
	A	Sales in units	2450	3150	3150
	B	Unit Sales Price	$            80.00	$             80.00	$        80.00
	C=A*B	Sales Revenue	$        196,000	$         252,000	$252,000	$0
	D=A*30	Direct Material	$73,500	$94,500	$94,000	($500)	Favorable
	E=A*18	Direct Labor	$44,100	$56,700	$60,000	$3,300	Unfavorable
	F=H*60%	Fixed Production Overhead	$31,800	$31,800	$30,000	($1,800)	Favorable
	G=A*6.06	Variable Overhead	$14,840	$19,080	$20,000	$920	Unfavorable
	H=F+G	Total Overhead	$46,640	$50,880	$50,000	($880)	Favorable
	I=D+E+H	Total Cost	$164,240	$202,080	$204,000	$1,920	Unfavorable