Calculate the budget cost allowance

Reference no: EM13920379

Preparing a flexible budget

(a) Prepare a budget for 20X6 for the direct labour costs and overhead expenses of a production department flexed at the activity levels of 80%, 90% and 100%, using the information listed below.

(i) The direct labour hourly rate is expected to be $3.75.

(ii) 100% activity represents 60,000 direct labour hours.

(iii) Variable costs

Indirect labour $0.75 per direct labour hour

Consumable supplies $0.375 per direct labour hour Canteen and other

welfare services 6% of direct and indirect labour costs

(iv) Semi-variable costs are expected to relate to the direct labour hours in the same manner as for the last five years.

	Year 20X1	Direct labour hours 64,000	Semi-variable costs $ 20,800
	20X2	59,000	19,800
	20X3	53,000	18,600
	20X4 20X5	49,000 40,000 (estimate)	17,800 16,000 (estimate)
(v)	Fixed costs		$
	Depreciation		18,000
	Maintenance		10,000
	Insurance		4,000
	Rates		15,000
	Management salaries		25,000
(vi)	Inflation is to be ignored.

(b) Calculate the budget cost allowance (ie expected expenditure) for 20X6 assuming that 57,000 direct labour hours are worked.

Reference no: EM13920379

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