The directors of the company hope next year to be operating at 85% of the capacity, although currently the company is operating at 65% of the capacity. 65% of the 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 budget for the current year are as follows:

Capacity level

55%

65%

75%

K

K

K

Directmaterials

846,200

1,000,000

1,153,800

Directwages

1,480,850

1,750,000

2,019,150

Productionoverhead

596,170

650,000

703,830

Sellinganddistributionoverhead

192,310

200,000

207,690

Administrationoverhead

120,000

120,000

120,000

Profitinanyyearisbudgetedtobe162/3%ofsales.

Thefollowingpercentageincreasesincostsareexpectedfornextyear.

Increase%

Directmaterials

6.0

Directwages

3.0

Variableproductionoverhead

7.0

Variablesellinganddistributionoverhead

7.0

Fixedproductionoverhead

10.0

Fixedsellinganddistributionoverhead

7.5

Administrationoverhead

Capacity level. 55