Prepare a flexible budget at 80%, 90%, 100% levels of activity, showing the profits at these levels.

1. Present sales of 800,000 units @ Rs. 10 each is at normal level of 80% capacity. If output is increased to 90%, then selling price will be reduced by 2.5%, and if output increases to 100%, then selling price will be reduced by 5% on original price.

2. Prime cost p.u.is Rs. 5, of which Rs. 3.50 is direct material, Rs. 1.25 is direct labor, Rs. 0.25 is other direct expenses. At output 90% and above capacity, 5% can be saved on purchase price of raw material.

3. Variable overheads salesmens commission @ 5% on sales

4. Semi variable overheads at normal capacity are given below:

Overheads

Amt. Rs.

Supervision

80,000

Power

70,000

Heat and light

40,000

Maintenance

50,000

Salesman expn

60,000

Indirect labor

100,000

Transport cost

200,000

These will increase by 5% if output reached 90%, and will increase further by 10% if output reaches 100%.

5. Fixed overheads are as below:

Overheads

Amt. Rs.

Rent and rates

100,000

Depreciation

400,000

Advt.

500,000

Gen. expenses

50,000

Admin. Expenses

750,000

Sales dept.

200,000

How do variable / semi-variable / fixed overheads affect decision in any organization?