Problems on Flexible Budget

Extra: 01
You are given the following information relating to Tista Ltd.:
Budget (At 100%) Actual
Production in units 10,000 8,000
Fixed Cost (Tk.) 4,00,000 3,80,000
Variable Cost (Tk.) 6,00,000 5,20,000
Required:
a) Prepare Flexible Budgets for 80%, 90%, and 100% Production Levels;
b) Prepare a Performance Report;
c) Express Flexible Budget into Formula Format and calculate Budgeted Cost for
8,500 units.

Solution:

Required: a)
Tista Ltd.
Flexible Budgets

Particulars 80% Level 90% Level 100% Level

Taka Taka Taka
1. Production in Units 8,000 9,000 10,000
2. a) Variable Cost 4,80,000 5,40,000 6,00,000
b) Variable Cost Rate (2a ÷ 1) 60.00 60.00 60.00
4. a) Fixed Cost 4,00,000 4,00,000 4,00,000
b) Fixed Cost Rate (3a ÷ 1) 50.00 44.44 40.00
6. a) Total Cost 8,80,000 9,40,000 10,00,000
b) Total Cost Rate (4a ÷ 1) 110.00 104.44 100.00

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Required: b)

Tista Ltd.
Performance Report

Particulars Budget Actual Variances (Taka)

Taka Taka Favorable Unfavorable

1. Production in Units 8,000 8,000 Nil Nil

2. Variable Cost 4,80,000 5,20,000 Nil 40,000
3. Fixed Cost 4,00,000 3,80,000 20,000 Nil
4. Total Cost (2 + 3) 8,80,000 9,00,000 Nil 20,000

Required: c)
Expression of Flexible Budget into Formula Format:

y = a + bx
Where, y = Total Budgeted Cost = ?
a = Fixed Cost = Tk.4,00,000
b = Variable Cost per unit = Tk.60
x = Budgeted Units = ?
Therefore,
y = Tk.4,00,000 + Tk.60x
Budgeted Cost for 8,500 unit =
y8,500 units = Tk.4,00,000 + Tk.60 × 8,500 units
= Tk.4,00,000 + Tk.5,10,000 = Tk.9,10,000

Extra: 02 (Home Task)

You are given the following information relating to Karatoya Ltd.:
Budget (At 100%) Actual
Production in units 10,000 8,000
Variable Cost (Tk.) 2,00,000 1,75,000
Fixed Cost (Tk.) 1,00,000 1,00,000
Required:
a) Prepare Flexible Budgets for 80%, 90%, and 100% Production Levels;
b) Prepare a Performance Report;
c) Why ‘Flex’ in the Flexible Budget is confined to the Variable Cost only?

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Extra: 03 (Home Task)
You are given the following information relating to Surma Ltd.:
Budget Actual
Production in units 10,000 8,000
Variable Cost (Tk.) 4,00,000 3,75,000
Fixed Cost (Tk.) 2,00,000 2,00,000
Required:
a) Prepare a Production Budget for 10,000 units of Production;
b) Prepare a Revised Production Budget based on Actual Production;
c) Express the above Budget into Formula Format;
d) Prepare Performance Report.

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