Question

2.1 A business has prepared a fixed budget for the coming financial year, as shown below: Fixed Budget Actual figures for the year Production = 2000 units £ Production = 3000 units £ Variable costs Variable costs Direct materials 6000 Direct materials 8500 Direct labour 4000 Direct labour 4500 Maintenance 1000 Maintenance 1400 Semi-variable costs Other costs 3600 Semi-variable costs Other costs 5000 Fixed costs Fixed costs Depreciation Rent and rates 2000 1500 Depreciation Rent and rates 2200 1600 Total costs 18100 Total costs 23200 As a result of increased demand, it has been decided to increase production by 50%. An updated flexible budget is required. You are asked to prepare this using the following cost behaviour information: • Direct materials, direct labour and maintenance are considered as variable. • Rent and rates and depreciation are fixed. • Other costs are calculated as £1600 plus a variable cost of £1 per unit.

Answer 1

The current year actual production is 3000 , now there is a increase of 50% then the revised budgeted production is 4500 units. Variable cost can be evaluated on dividing cost for 2000 units by 2000 units. Eg.-

Direct material cost per unit= 6000/2000

=£3 per unit

Now you can multiply it with 4500 units to calculate revised budgeted cost.

Answer:. Statement showing handle budget for 4500 units Amount working particulars variable cost 13500 - Direct Material (usoo x 100 - Labour cusso x 4.600) 900 - Maintenance (4500 x 1000 ) 2250 semi variable cost - other cost (usoox 6160 + 1600) fixed cost - Deprecation - Rent & Rates {Remains fixed at all level) 1 of production 2000 1500 £34350 cost Total Budgeted