PRACTICE PROBLEMS-FLEXIBLE BUDGETS

1. Brewer Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound
area. The company’s planning budget for May appears below:

BREWER SOUND DIVERS

Planning Budget
For the Month Ended May 30
Budgeted diving- hours (q) 100
Revenues (P365.00q) P36,500
Expenses:
Wages and salaries (P8,000 + P125.00q) 20,500
Supplies (P3.00q) 300
Equipment rental (P1,800 +P32.00q) 5,000
Insurance (P3,400) 3,400
Miscellaneous (P630 + P1.80q) 810
Total expense 30,010
Net operating income P6,490

During May, the company’s actual activity was 105 diving-hours.

Required:
Using Exhibit 9–5 as your guide, prepare a flexible budget for May. Submit your output in pdf format.

BREWER SOUND DIVERS

Flexible Budget
For the Month Ended May 30
Actual diving- hours (q) 105
Revenues (P365.00q) P38,325
Expenses:
Wages and salaries (P8,000 + P125.00q) 21,125
Supplies (P3.00q) 315
Equipment rental (P1,800 +P32.00q) 5,160
Insurance (P3,400) 3,400
Miscellaneous (P630 + P1.80q) 819
Total expense 30,819
Net operating income 7,506

2. Saudia Corporation is an oil well service company that measures its output by the number of wells serviced. The company
has provided the following fixed and variable cost estimates that it uses for budgeting purposes.

Fixed Element per Variable Element per

Month Well Serviced
Revenue P 180,000
Employee salaries and wages P 2,256,000 P 36,000
Servicing materials P 28,000
Other expenses P 1,416,000

When the company prepared its planning budget at the beginning of December, it assumed that 34 wells would have been serviced.
However, 32 wells were actually serviced during December.

Required:
Determine the "Employee salaries and wages" in the flexible budget for December. Show your solution.

Solution:

Wells serviced (q) 32

Fixed Element per Month P2,256,000
Variable Element per well serviced (P36,000q) 1,152,000
Total employee salaries and wages P3,408,000

Answer: The employee salaries and wages in the flexible budget during December is P3,408,000.