Prepare flexible budgets for the final quarter at production

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Reference no: EM13878766

Great Lakes Co. is about to commence the final quarter of activity for the current financial year. The results for the first three quarters of the year have been as follows:

 

Q1

Q2

Q3

Sales volume

12,000

20,000

18,000

Production  volume

15,000

25,000

18,000

Costs (£000) Direct materials

150

250

180

Direct labour

130

190

148

Depreciation of plant

12

12

12

Other  production overheads

50

70

56

Administration costs

30

30

30

Selling and distribution costs

38

50

47

Total costs

410

617

473

Notes:

(i) The variable elements of production costs are related to the volume of production. The variable element of selling and distribution costs is related to the volume of sales.

(ii) During the fourth quarter of the year sales volume is expected to range between 18,000 and 24,000 units; production will be set equal to sales in the quarter. The company has been informed that the unit price of materials will increase by 8% in the fourth quarter.

(iii) For the whole of the year the selling price is £30 per unit.

Prepare flexible budgets for the final quarter at production (and sales) levels of 18,000 and 24,000 units. Forecast the profit at these sales levels.

Reference no: EM13878766

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