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Prepare a budget based on a level of activity

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Question: (a) Clothar pic manufactures one standard product and in common with other companies in the industry is suffering from the current depression in the market. Currently it is operating at a normal level of activity of 70% which represents an output of 6,300 units but the sales director believes that a realistic forecast for the next budget period would be a level of activity of 50%.

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You are required, from the data given in the current flexible budget above, to prepare a budget based on a level of activity of 50%, which should show clearly the contribution which could be expected.

(b) Discuss briefly three problems which may arise from such a change in level of activity.

Reference no: EM131626989

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