The demand for output of a certain company is very elastic and a modern plant recently installed

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The demand for output of a certain company is very elastic and a modern plant recently installed is capable of greatly increased production. Output at present is 80,000 units per year, and 5 lakh units are estimated to be within the capacity of the new plant. The present selling price per unit is ₹15.

The need for flexible budgeting is recognised and six alternative levels of output, in addition to the present level, are contemplated. Six equal increments in annual output level, up to a maximum of 5,00,000 units, would involve corresponding reductions of ₹1 each in unit price to ₹9 per unit at the maximum output.

The present variable costs amount to ₹4,00,000. Fixed costs which at present amount to ₹2,00,000 are not expected to increase for any of the six alternative output levels contemplated. Semi-fixed cost are expected to vary from the present annual figure of ₹2,30,000 to ₹3,20,000, the upward steps being to

₹2,60,000 at 2,20,000 units, ₹2,80,000 at 3,60,000 units, and ₹3,20,000 at 5,00,000 units. The costs classified as variable at the six projected levels of output are calculated to be as follows:image text in transcribed

Prepare the flexible budget and identify the volume which should be set for the budgeted output.

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