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    Flexible Budget Practice Question

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    Zain-ul- Farid
    Atlas Motors is currently operating at 75% capacity but hopes to increase to 95% capacity next year. The company employs 100 direct workers and currently produces 10,000 units per year. Flexible budgets are provided for various capacity levels in the current year, along with expected cost increases for next year. The summary must prepare a flexible budget statement assuming 95% capacity for next year, showing contribution and profit.

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    Flexible Budget Practice Question

    Uploaded by

    Zain-ul- Farid
    664 views2 pages
    Atlas Motors is currently operating at 75% capacity but hopes to increase to 95% capacity next year. The company employs 100 direct workers and currently produces 10,000 units per year. Flexible budgets are provided for various capacity levels in the current year, along with expected cost increases for next year. The summary must prepare a flexible budget statement assuming 95% capacity for next year, showing contribution and profit.

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    Atlas Motors is currently operating at 75% capacity but hopes to increase to 95% capacity next year. The company employs 100 direct workers and currently produces 10,000 units per year. Flexible budgets are provided for various capacity levels in the current year, along with expected cost increases for next year. The summary must prepare a flexible budget statement assuming 95% capacity for next year, showing contribution and profit.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    664 views2 pages

    Flexible Budget Practice Question

    Uploaded by

    Zain-ul- Farid
    Atlas Motors is currently operating at 75% capacity but hopes to increase to 95% capacity next year. The company employs 100 direct workers and currently produces 10,000 units per year. Flexible budgets are provided for various capacity levels in the current year, along with expected cost increases for next year. The summary must prepare a flexible budget statement assuming 95% capacity for next year, showing contribution and profit.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Question 1

    Atlas Motors is in an industry sector which is expected to see growth in upcoming few years. The
    directors of the company hope next year to be operating at 95% of capacity, although currently the
    company is operating at only 75% of capacity. 75% 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 65% 75% 85%


      $ $ $
    Direct material 866,666 1,000,000 1,133,333
    Direct wages 1,516,666 1,750,000 1983,333
    production overhead 527334 570000 612667
    Selling and distribution overhead 150000 150000 150000
    Administration overhead 120,000 120,000 120,000
    Total cost 3,180,666 3,590,000 3,999,333
    Profit in any year is budgeted to be 17% of sales.

    The following percentage increases in costs are expected for next year.

      Increase
      %
    Direct material 5
    Direct wage 4
    Variable production OH 8
    Fixed Production OH 9
    selling & distribution OH 8
    Administration OH 10

    Requirement
    Prepare for next year a flexible budget statement on the assumption that the company operates at
    95% of capacity; your statement should show both contribution and profit.

    Question 2

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

    Page 1 of 2
    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 1,000,000 1,153,800
    Direct Wages 1,480,850 1,750,000 2,019,150
    Production Overhead 596,170 650,000 703,830
    Selling & Distrubion OH 200,000 200,000 200,000
    Administrative OH 120,000 120,000 120,000
    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 3
    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
    85% of capacity; your statement should show both contribution and profit. (12 marks)

    Page 2 of 2

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