Compare a fixed budget with the budget suggest

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Reference no: EM132529533

Alwell LLC is a leading manufacturer of disposable gowns and surgical gloves used in hospitals. The company was operating at 75% capacity during January and February 2020. As a result of the spread of COVID-19 pandemic, the company received huge amount of orders from various trading concerns in Oman. The management decides to increase its production capacity for the coming months. Initially they plan to increase the capacity by 15% but as orders increase day by day, to meet the increasing demand the company decides to operate at full production capacity.

Imagine you are the management accountant and management wants you to present the budgeted expenses corresponding to the different levels of activity. You have the following information before you:

Production units at current activity level 15,000 units

Materials RO 130 per unit

Labour RO 45 per unit

Expenses (Direct) RO 28 per unit

Factory expenses RO 80,000 (55% fixed)

Administration expenses RO 20,000 (65% fixed)

You are required by management to:

Question a. Advice on what type of budget is best suitable for planning purpose based on the above situation. Give your reasons on the suggestion you make

Question b. Prepare the budget you suggest with change in the level of activity after COVID 19 crisis.

Question c. Do you think a fixed budget would be ideal in this situation? Why?

Question d. Referring to the case given to you, compare a fixed budget with the budget you suggest. Explain by giving three reasons on the suitability of budget you choose for planning

Reference no: EM132529533

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