Fixed and flexible budgets
(a) Explain what is meant by the terms ‘fixed budget’ and ‘flexible budget’, and state the main objective of preparing flexible budgets.
(b) (i) prepare a flexible budget for 20X5 for the overhead expenses of a production department at the activity levels of 80%, 90% and 100% using the information listed below.
|
Indirect labour |
£0.75 per direct labour hour |
|
Consumable supplie |
£0.375 per direct labour hour |
|
Canteen and other welfare services |
6% of direct and indirect labour costs |
|
Year |
Direct labour |
Semi-variable costs (£) |
|
20X0 |
64 000 |
20 800 |
|
20X1 |
59 000 |
19 800 |
|
20X2 |
53 000 |
18 600 |
|
20X3 |
49 000 |
17 800 |
|
20X4 |
40 000 |
16 000 |
|
(estimate) |
(estimate) |
|
(£) |
|
|
Depreciation |
18 000 |
|
Maintenance |
10 000 |
|
Insurance |
4 000 |
|
Rates |
15 000 |
|
Management salaries |
25 000 |
(i) Calculate the budgets cost allowance for 20X5 assuming that 57 000 direct labour hours are worked.
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