Question

PCL (Pty) Ltd gave you the following expenses that were budgeted to produce 10,000 units in their factory as shown below:

                                                                                                Pula

Materials                                                                                   70

Labour                                                                                       25

Variable factory overheads                                                       20

Fixed factory overhead (P100,000)                                         10

Direct Variable expenses                                                           5

Selling expenses (10% were fixed costs)                                13

Distribution expenses (20% were fixed)                                   7

Fixed Administrative expenses (P50,000)                                 5

Total cost of sale per unit                                                       155

Required:

Prepare a flexible budget for the production of 8,000 units.                                           

Flexible Budget (8000 Units)

Answer 1

	Nature	Per unit	Units	Total
Materials	Variable	70	8000	560000
Labour	Variable	25	8000	200000
Variable Factory Overheads	Variable	20	8000	160000
Direct Variable expenses	Variable	5	8000	40000
Selling expenses- Variable	Variable	11.7	8000	93600
Selling expenses- Fixed	Fixed	1.625	8000	13000
Distribution Expenses- variable	Variable	5.6	8000	44800
Distribution Expenses- Fixed	Fixed	1.75	8000	14000
Fixed Administrative expenses	Fixed	6.25	8000	50000
Total cost of sale		146.925

The fixed costs will not vary with respect to change in units. Therefore, Per unit costs in case of fixed costs is arrived by dividing the Fixed cost computed by taking 10000 units and then dividing the total by 8000 units.