Example of Flexible and Fixed Budget
A company has budgeted to produce and sell 100,000 units of cakes throughout the next period. The selling price per cake is Sh. 20 and variable cost per cake is Sh. 12. Fixed overheads are budgeted to at Sh. 6000,000.
Additional information
1. Fixed costs will raises to Sh. 700,000 in that activity is in excess of 110,000 units; Fixed costs will decreases to Sh. 480,000 where activity level is less than 90,000 units.
2. Variable costs will fall with 5 percent per unit cake of all units where activity is in excess of 100,000 cakes due to the economies of scale.
The real results of the period in that 115,000 units cakes were produced and then sold were:
1. Sales revenue Sh. 2,242,500
2. Variable costs Sh. 1,320,000
3. Fixed costs Sh. 67,000
Required
1. Prepare a summary that Implies the budgeted results for activity levels from 80,000 to 120,000 cakes utilizing the above information.
2. Prepare a control statement comparing budgeted along with real results where a fixed budget system is utlized based on 100,000 units.
Solution
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Flexible Budget Summary
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|
Units
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80,000
|
90,000
|
100,000
|
110,000
|
120,000
|
|
Sales Revenue
|
1,600,000
|
1,800,000
|
2,000,000
|
2,200,000
|
2,400,000
|
|
Variable cost
|
690,000
|
108,000
|
120,000
|
1,254,000
|
1,368,000
|
|
Contribution
|
640,000
|
720,000
|
800,000
|
946,000
|
1,032,000
|
|
Fixed Costs
|
480,000
|
600,000
|
600,00
|
600,000
|
700,000
|
|
Net Profit
|
160,000
|
120,00
|
200,000
|
346,000
|
332,000
|
|
Control Statement (Fixed Budget)
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|
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Budget
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Actual
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Variance
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|
Units
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100,000
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115,00
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15,00 (F)
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|
Sales Revenue
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2,000,000
|
2,242,500
|
242,500 (A)
|
|
Variable Cost
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1,200,000
|
1,320,000
|
120,000 F
|
|
Contribution
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800,000
|
922,500
|
122,500 (A)
|
|
Fixed Costs
|
600,000
|
670,000
|
70,000 (A)
|
|
Net Profit
|
200,000
|
252,500
|
525,000 (F)
|