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Flexible Budget Analysis for Production Units

The document outlines a flexible budget solution for a factory with a production capacity of 6,400 units, detailing fixed and variable costs totaling Tk. 176,048. It calculates the costs and profits for production targets of 3,200 and 4,800 units, showing profits of Tk. 26,032 and Tk. 51,192 respectively. The selling price per unit is maintained at Tk. 40, with administrative expenses remaining constant at Tk. 3,600.

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Abdullah Al Rafi ,141438
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12 views2 pages

Flexible Budget Analysis for Production Units

The document outlines a flexible budget solution for a factory with a production capacity of 6,400 units, detailing fixed and variable costs totaling Tk. 176,048. It calculates the costs and profits for production targets of 3,200 and 4,800 units, showing profits of Tk. 26,032 and Tk. 51,192 respectively. The selling price per unit is maintained at Tk. 40, with administrative expenses remaining constant at Tk. 3,600.

Uploaded by

Abdullah Al Rafi ,141438
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Flexible Budget Solution

Question:
Problem 2: The budgeted cost of a factory specializing in the production of a single product
at the optimum capacity of 6,400 units per annum amount Tk. 176,048 as detailed below:

Fixed cost (Tk.):


- Fixed costs: 20,688

Variable costs (Tk.):


- Power: 1,440
- Repairs: 1,700
- Miscellaneous: 540
- Direct materials: 49,280
- Direct labor: 1,02,400
- Total: 1,55,360

Total budgeted cost: Tk. 1,76,048

Taking into consideration the possible impact on the sales turnover by the market trend,
the company decides to have a flexible budget with a production target of 3,200 and 4,800
units (the actual quantity proposed to be produced being left to a later date before
commencement of the budget period). Prepare the flexible budget for the production levels
at 50% and 75%. Assuming the selling price per unit is maintained at Tk. 40 at present,
indicate the effect on net profit. Administrative, selling, and distribution expenses continue
Tk. 3,600.

Given Data:
1. Fixed Costs (Tk.):
- Fixed costs: Tk. 20,688
2. Variable Costs (Tk.):
- Power: Tk. 1,440
- Repairs: Tk. 1,700
- Miscellaneous: Tk. 540
- Direct Materials: Tk. 49,280
- Direct Labor: Tk. 1,02,400
- Total Variable Costs: Tk. 1,55,360
3. Total Budgeted Cost (Fixed + Variable): Tk. 1,76,048 (at 6,400 units).
4. Selling Price per Unit: Tk. 40
5. Administrative, Selling, and Distribution Expenses: Tk. 3,600 (constant).
Flexible Budget Targets:
Production targets: 50% (3,200 units) and 75% (4,800 units).

Step 1: Find Variable Cost Per Unit


The total variable cost for 6,400 units = Tk. 1,55,360.
Variable cost per unit = Total Variable Cost ÷ Number of Units
Variable cost per unit = 155,360 ÷ 6,400 = Tk. 24.275

Step 2: Calculate Total Costs for 3,200 and 4,800 Units

For 3,200 Units:


1. Variable Cost:
Total Variable Cost = Variable Cost per Unit × Production Units
= 24.275 × 3,200 = Tk. 77,680
2. Total Cost:
Total Cost = Fixed Cost + Variable Cost
= 20,688 + 77,680 = Tk. 98,368
3. Sales Revenue:
Revenue = Selling Price per Unit × Production Units
= 40 × 3,200 = Tk. 1,28,000
4. Profit:
Profit = Revenue - (Total Cost + Admin, Selling, and Distribution Expenses)
= 1,28,000 - (98,368 + 3,600) = Tk. 26,032

For 4,800 Units:


1. Variable Cost:
Total Variable Cost = 24.275 × 4,800 = Tk. 1,16,520
2. Total Cost:
Total Cost = Fixed Cost + Variable Cost
= 20,688 + 1,16,520 = Tk. 1,37,208
3. Sales Revenue:
Revenue = Selling Price per Unit × Production Units
= 40 × 4,800 = Tk. 1,92,000
4. Profit:
Profit = Revenue - (Total Cost + Admin, Selling, and Distribution Expenses)
= 1,92,000 - (1,37,208 + 3,600) = Tk. 51,192

Step 3: Summary Table


Production Variable Fixed Cost Total Cost Revenue Profit (Tk.)
Level Cost (Tk.) (Tk.) (Tk.) (Tk.)
3,200 Units 77,680 20,688 98,368 1,28,000 26,032
4,800 Units 1,16,520 20,688 1,37,208 1,92,000 51,192

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