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Before the year began, a static budget was developed for the estimated sales of 50,000 units. At the end of the year, the company
Before the year began, a static budget was developed for the estimated sales of 50,000 units. At the end of the year, the company recorded actual sales of 100,000 units which was higher than expected. In order to identify the variances, the management accountant is revising the budget for comparison with the actual performance. Below is the static budget: $ Sales revenue 1,250,000 Cost of goods sold: Direct material (450,000) Direct labour (500,000) Variable manufacturing overhead (125,000) Fixed manufacturing overhead (32,000) Total cost of goods sold (1,107,000) Gross profit 143,000 Variable sales and administrative expenses (50,000) Fixed sales and administrative expenses Income before taxes (90,000) 3,000 Taxes at 30% Net income 900 2,100 Required: (a) Prepare a flexible budget based on the actual sales of 100,000 units. (10 marks) (b) Discuss, with elaboration, the FIVE purposes of budgeting in organisations. (10 marks)
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