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Question:
A company has budgeted to produce and sell 10,000 units of a product, the selling price and the variable cost per unit of which is Rs 20 and Rs 12 respectively. Fixed costs which are budgeted at Rs 60,000 for the period are likely to rise to Rs 70,000 if activity level goes beyond 11,000 units and fall to Rs 48,000, if the activity level is less than 9,000 units. It is also estimated that variable costs will fall by 5% per unit for all units, if the activity level goes beyond 10,000 units. If the actual results for the period are as given below:
(a) Prepare a fixed budget and a flexible budget;
(b) Show the usefulness of fixed budgeting and flexible budgeting from the point of view planning and control.
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1. Compute the predetermined overhead rate.
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