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. 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?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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
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
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?
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