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Flexible Budget:
It is the plan that is prepared at different levels of production. In this budget company changes the revenue and expenses as per change in output. It is also known as variable budget.
To prepare: Flexible budget
Explanation of Solution
Flexible budget at 6000, 7000 and 8000 units.
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T Company |
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Flexible Budget |
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For the quarter ended March 31, 2017 |
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Particulars |
Variable cost per unit ($) |
Total fixed Cost ($) |
Sale of 6,000 units |
Sale of 7,000 units |
Sale of 8,000 units |
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Amount ($) |
Amount ($) |
Amount ($) |
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Production (units) |
6000 |
7000 |
8000 |
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Sales |
400 |
2,400,000 |
2,800,000 |
3,200,000 |
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Less : Variable cost |
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Direct material |
40 |
240,000 |
280,000 |
320,000 |
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Direct Labor |
70 |
420,000 |
490,000 |
560,000 |
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Production supplies |
25 |
150,000 |
175,000 |
200,000 |
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Sales commission |
20 |
120,000 |
140,000 |
160,000 |
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Packaging |
22 |
132,000 |
154,000 |
176,000 |
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Total variable costs |
177 |
1,062,000 |
1,239,000 |
1,416,000 |
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Contribution margin |
223 |
1,338,000 |
1,561,000 |
1,784,000 |
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Less: Fixed Costs |
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Plant manager salary |
65,000 |
65,000 |
65,000 |
65,000 |
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Advertising |
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125,000 |
125,000 |
125,000 |
125,000 |
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Administrative salaries |
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85,000 |
85,000 |
85,000 |
85,000 |
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35,000 |
35,000 |
35,000 |
35,000 |
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Insurance |
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20,000 |
20,000 |
20,000 |
20,000 |
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Office Rent |
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36,000 |
36,000 |
36,000 |
36,000 |
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Total fixed costs |
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366,000 |
366,000 |
366,000 |
366,000 |
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Income from operations |
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1,428,000 |
1,605,000 |
1,782,000 |
Table(1)
Thus, income from 6000 units is $1,428,000, 7000 units is $1,605,000 and 8000 units is 1,782,000.
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