Preparation of flexible budgets The following monthly budgeted cost values have been taken from the budget working papers of MZ Limited for the year ended 30 September 2000.

Required:

(a) Prepare a budgetary control statement for MZ Limited on a flexible budget basis for the month of September 2000. (7 marks)

(b) Explain the difference between fixed and flexible budgets, and state when each should be used to control costs. (8 marks)

(c) The preparation of budgets is an important task that relies on the identification of the principal budget factor.
Explain the term ‘principal budget factor’
and state its importance in the budget preparation process.

(d) Explain the role of the budget committee in the budget preparation process.

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Activity level 60% 70% 80% () () () Direct materials 30 000 35 000 40 000 Direct labour 40 500 47 250 54 000 Production overhead 46 000 52000 58000 Selling overhead 15 000 17000 19 000 Administration overhead 28000 28000 28000 159 500 179 250 199 000 During September 2000, actual activity was 1292 units (which was equal to 68% activity) and actual costs were: Direct materials Direct labour Production overhead Selling overhead Administration overhead () 33 500 44 000 46250 16150 27 800 167 700