Flexible-budget preparation. (20-30 minutes) The managing partner of Hoofdorp Music Box Fabricators has become aware of the disadvantages of static budgets. She asks you to prepare a flexible budget for October 2000 for the main style of music box. The following partial data are available for the actual operations in August 1999 (a recent typical month):

Assume no opening or closing stocks of music boxes.
A 10% increase in the selling price is expected in October. The only variable marketing cost is a commission of EUR 5.50 per unit paid to the manufacturers’ representatives, who bear all their own costs of travelling, entertaining Customers, and so on. A patent royalty of EUR 2 per box manufactured is paid to an independent design firm. Salary increases that will become effective in October are EUR 12,000 per year for the production superintendent and EUR 15,000 per year for the sales manager. A 10% increase in direct materials prices is expected to become effective in October. No changes are expected in direct manufacturing labour wage rates or in the productivity of the direct manufacturing labour personnel.
Hoofdorp uses a normal costing system and does not have standard costs for any of its inputs.
REQUIRED 1. Prepare a flexible budget for October 2000, showing budgeted amounts at each of three output levels of music boxes: 4,000, 5,000 and 6,000 units. (Use the flexible-budget approach of developing budgeted revenue and variable costs on a budgeted per output unit basis.)

2. Why might Hoofdorp Music Box Fabricators find a flexible budget more useful than a static budget? Explain. nj4

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Boxes produced and sold Direct material costs Direct manufacturing labour costs Depreciation and other fixed manufacturing costs Average selling price per box Fixed marketing costs 4,500 EUR 90,000 EUR 67,500 EUR 50,700 EUR 70 EUR 81,350