Page 127 - DCOM206_COST_ACCOUNTING_II
P. 127
Cost Accounting – II
Notes
!
Caution According to the principles that guide the preparation of the flexible budget a
series of fixed budgets are drawn for different levels of activity. The costs involved with
the activities are analysed in terms of fixed, variable, semi-variable, etc.
6.6.1 Advantages of Flexible Budget
The flexible budget has the following advantages:
(i) It helps in assessing the performance of all departmental heads as the same can be judged
in terms of the level of activity attained by the business or firm,
(ii) A flexible budget is prepared for various levels of activity. As such, costs can be ascertained
at different levels of activity. So, it helps in fixation of price and placing quotations, and
(iii) As the budget is adjusted in response to the changes in the levels of activity, the budget
reckons every change in situations. As a matter of fact, the flexible budget is very useful
for the purpose of budgetary control.
Problem 3:
Kartik Limited has prepared a budget for the production of 1,00,000 units of the only commodity
manufactured by them for a costing period as under:
Raw materials ` 2.52 per unit
Direct labour ` 0.75 per unit
Direct expenses ` 0.10 per unit
Works overheads (60% fixed) ` 2.50 per unit
Administration overheads (80% fixed) ` 0.40 per unit
Selling overheads (50% fixed) ` 0.20 per unit
The actual production during the period was only 60,000 units. Calculate the revised budgeted
cost per unit.
Solution:
Flexible Budget
Particulars Original Budget Revised Flexible Budget
(Output 1,00,000 Units) (Output 60,000 Units)
Per unit Amount Per unit Amount
(`) (`) (`) (`)
Raw materials 2.52 2,52,000 2.52 1,51,200
Direct labour 0.75 75,000 0.75 45,000
Direct expenses 0.10 10,000 0.10 6,000
Prime Cost 3.37 3,37,000 3.37 2,02,200
Works overheads 2.50 2,50,000 3.50 2,10,000
(1)
Cost of Production 5.87 5,87,000 6.87 4,12,200
(2)
Administration overheads 0.40 40,000 0.61 36,800
Selling overheads 0.20 20,000 0.27 16,000
(3)
Cost of Sales 6.47 6,47,000 7.75 4,65,000
122 LOVELY PROFESSIONAL UNIVERSITY
