LAW operates a system of flexible budgets and the flexed budgets for expenditure for the first two quarters of Year 3 were as follows: Flexed budgets - quarters 1 and 2 Activity Quarter1 Quarter 2 Sales units 9,000 14,000 Production units 10,000 13,000 Budget cost allowances $ $ Direct materials 130,000 169,000 Production labour 74,000 81,500 Production overhead 88,000 109,000 Administration overhead 26,000 26,000 Selling and distribution overhead 29,700 36,200 Total budgeted cost 347,700 421,700

The cost structures in quarters 1 and 2 are expected to continue during quarter 3 as follows: (a) The variable cost elements behave in a linear fashion in direct proportion to volume. However, for production output in excess of 14,000 units, the variable cost per unit for production labour increases by 50%. This is due to a requirement for overtime working. The extra amount is payable only on the production above 14,000 units. (b) Fixed costs are not affected by changes in activity levels. (c) The variable elements of production costs are directly related to production volume. (d) The variable element of selling and distribution overhead is directly related to sales volume. Required Prepare a statement of the budgeted cost allowance for quarter 3. The activity levels during quarter 3 were: Units Sales 14,500 Production 15,000