QUESTION PJ Ltd is in an industry which is recovering from a recession. The directors of the company hope next year to be operating at 85% of capacity, although currently the company is operating only at 65% of capacity. 65% of capacity represents output of 10,000 units of the single product which is produced and sold. One hundred direct workers are employed on production for 200,000 hours in the current year. The flexed budgets for the current year are as follows: Capacity level 55% 65% 75% K K K Direct materials 846,200 1,000,000 1,153,800 Direct wages 1,480,850 1,750,000 2,019,150 Production overhead 596,170 650,000 703,830 Selling and distribution overhead 192,310 200,000 207,690 Administration overhead 120,000 120,000 120,000 Profit in any year is budgeted to be 167/1% of sales. The following percentage increases in costs are expected for next year. Increase % Direct materials 6.0 Direct wages 3.0 Variable production overhead 7.0 Variable selling and distribution overhead 7.0 Fixed production overhead 10.0 Fixed selling and distribution overhead 7.5 Administration overhead 10.0 NRequired: (a) Prepare for next year a flexible budget statement on the assumption that the company operates at 85% of capacity; your statement should show both contribution and profit. (16 Marks) (b) List any three (3) problems that may arise from the change in capacity level. (3 Marks) (c) State any three (3) disadvantages of operating a participatory budgetary process. (6 Marks) End of Assignment