Earlier article describe what is flexible budget. Below is a simple illustration of flexible budgeting.
|Company ABC manufactures a single product and has produced the following flexed budget for the year.Level Of Activity
Question: Prepare a budget flexed at the 45% level of activity
|Answer:[Guide:To flex the budget, we need to determine which costs are semi-variable and calculate the variable cost per 1% change in activity as (range of cost)/(range of activity) and fixed costs as total cost minus variable cost at that activity level. Calculate a cost per 1% for all the variable costs, flex them to 45% and deduct the fixed costs]
Production overhead is a semi-variable cost
Range of activity=90%-70%=20%
Range of production overhead costs=$(33,500-30,500)=$3,000
Therefore, variable cost per 1% change in activity=$3,000/20=$150
Fixed cost=$33,500(90% x$150)=$20,000
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