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Goodluck Ltd is currently operating at 65% of its capacity.

For the past


year, the level of operations were 55%. Presently the production is
65,000 units. The company is planning for 75% capacity level for the
next year. The cost details are as follows:
Particulars

55%

65%

11,00,000

13,00,000

Direct Labor

5,50,000

6,50,000

Factory overheads

3,10,000

3,30,000

Selling overheads

3,20,000

3,60,000

Administrative
Overheads

1,60,000

1,60,000

Direct Material

Prepare the budget for all the costs at 75% level for the next year.

Out of all the costs mentioned, Direct Material


and Direct Labor are pure variable costs,
Factory overheads and selling overheads are
semi variable and Administrative expenses are
Fixed costs.

Separating the variable portion and fixed portion in the


semi variable cost
Variable Cost per unit = (Change in the total cost/
Change in the no. of units of production)
Variable cost per unit in factory overheads
20,000/ 10,000 = Rs. 2
Total Factory overheads at 55%= 3,10,000
Out of this, Variable portion is 55000 x 2 = 1,10,000
Rest 2,00,000 ( 3,10,000 1,10,000) is fixed portion
Which can also be verified by calculating it for 65000
units.

Variable portion in selling overheads


40,000 / 10,000 = Rs. 4 per unit
Total Selling Overhead = 3,20,000
Variable portion 55000 x 4 = 2,20,000
Rest 1,00,000 (3,20,000 2,20,000 ) is fixed cost.

Budget at 75% level


Particulars
Direct Material

75%
15,00,000

Direct Labor

7,50,000

Factory overheads

3,50,000

Selling overheads

4,00,000

Administrative Overheads

1,60,000

Total

31,60,000

Following is the budget of a company at two


levels, you are required to prepare the budget at
the level of 1,40,000 units
Particulars

At 1,20,000 units

At 1,50,000 units

Material

2,64,000

3,30,000

Labor

1,50,000

1,87,500

Inspection

90,000

1,12,500

Maintenance

84,000

1,02,000

1,98,000

2,34,000

Depreciation

90,000

90,000

Engineering services

94,000

94,000

Supervision

Budget at 1,40,000 units level


Particulars

Material

3,08,000

Labor

1,75,000

Inspection

1,05,000

Maintenance
Supervision

96,000
2,22,000

Depreciation

90,000

Engineering services

94,000

For the production of 10,000 Electrical Automatic


irons, the following are the budgeted expenses.

Particulars
Direct Materials
Direct Labor
Variable Overheads
Fixed Overheads
Variable Expenses
Selling Expenses (10% Fixed)
Administration Expenses (Rs. 50,000
fixed for all levels of Production)
Distribution Expenses (20% Fixed)
Total Cost of Sales per unit

Per Unit(Rs.)
60
30
25
15
5
15
5
5
160

Prepare a budget for the production of 6,000 and 7,000 irons


showing variable and Fixed costs separately.

Selling Expenses 10% fixed


Out of Rs. 15 , 1.5 per unit is fixed and 13.5 per unit is
variable
Fixed is 1.5 x 10,000 = 15,000

Administration Exp. 50000 fixed

Distribution Expenses 20% fixed


Out of Rs. 5, Rs. 1 per unit is fixed and Rs. 4 is variable
Fixed Distribution Expenses are 1 x 10,000 = Rs. 10,000
Fixed overheads = 15 x 10,000 = Rs. 1,50,000

Partculars

Per Unit

Amount at 6,000 units

Variable Cost:
Direct Material

60

3,60,000

Direct Labor

30

1,80,000

Variable Overheads

25

1,50,000

Variable Expenses

30,000

Selling Expenses

13.5

81,000

Distribution Exp.

24,000

Fixed Cost
Fixed Overheads

1,50,000

Selling Expenses

15,000

Distribution Expenses

10,000

Administration Exp.

50,000

Partculars

Per Unit

Amount at 7,000 units

Variable Cost:
Direct Material

60

4,20,000

Direct Labor

30

2,10,000

Variable Overheads

25

1,75,000

Variable Expenses

35,000

Selling Expenses

13.5

94,500

Distribution Exp.

28,000

Fixed Cost
Fixed Overheads

1,50,000

Selling Expenses

15,000

Distribution Expenses

10,000

Administration Exp.

50,000