Intermediate: Preparati on of a flex ible budget

(a) Explain what is meant by the terms 'fixed budget' and

'flexible budget' and state the main objective of preparing flexible budgets . (5 marks)

(b) (i) Prepare a flexible budget for 1986 for the overhead expenses of a production department at the activity levels of 80%, 90% and 100%, using the information listed below (12 marks)

(1) The direct labour hourly rate is expected to be £3.75.

(2) 100% activity represents 60000 direct labour hours.

(3) Variable costs :

lndtrect labour £0.75 per direct labour hour Consumable supplies £0.375 per direct labour hour Canteen and other 6% of direct and indirect welfare services labour costs

(4) Semi-variable costs are expected to correlate with the direct labour hours in the same manner as for the last five years which was:

Transcribed Image Text:

Year Direct labour hours Semi-variable costs () 1981 64000 20 800 1982 59000 19 800 1983 53000 18600 1984 49000 17800 1985 40000 (estimate) 16000 (estimate)