Calculate the profit at each of the levels of output

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The Cost Sheet of a Company based on a budgeted volume of sales of 3,00,000 units per Quarter is as under :

 

Rs. Per unit

Direct materials

5_00

Direct wages

2.00

Factory overheads ( 50 % fixed)

6.00

Selling and Administrative overheads (variable )

3.00

Selling Price

 

When the budget was discussed it was felt that the company would be able to achieve only a volume of 2,50.000 units of production and sales per Quarter. The Company therefore decided that an aggressive sales promotion campaign should be launched to achieve the following improved operations

Proposal I :

(a) Sell 4.00,000 units per quarter by sending Its. 2.00.000 on special advertising
(b) The factory fixed costs will increase by Rs.4.00,000 per Quarter

Proposal II :

(a) Sell 5.W.0(i) units per Quarter subject to the following conditions
(b) An overall price reduction of Rs. 2 per unit is allowed on all sales
(c) Variable Selling and Administration costs will increase by 5 %
(d) Direct Material costs will be reduced by I % due to purchase price discounts (b) The fixed factory costs will increase by Rs. 2,00.000 more

Problem 1: You are required to prepare a flexible Budget at 2.50.000 units. 4.00,000 units and 5,00.000 units of output per quarter and calculate the profit at each of the above levels of output.

Reference no: EM132783250

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