Azril Sdn Bhd manufactures one standard product and currently is suffering from temporary depression in the market. Currently it is operating at a normal level of activity of 70% which represents an out of 6,300 units. The Sales Director believes that with a realistic forecast for the next budget period, sales would be at the 50% level of activity.

		Level of activity
	60%	70%	80%
	RM	RM	RM
Direct Material	37,800	44,100	50400
Direct Wages	16,200	18,900	21,600
Production overhead	37,600	41,200	44,800
Administration overhead	31,500	31,500	31,500
Selling and distribution overhead	42,500	44,100	45,900
Total cost	165,400	179,800	194,200

Profit is at 20% of selling price.

Required:

1. To prepare a flexible budget based on the level of activity of 50% which clearly show the profit which would be expected (Use the High and Low Method to separate the variable and fixed cost element).

(15 marks)

2. Discuss the advantages of preparing budget for an organization. You are required to discuss five important points of budget preparation.