Page 201 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes The structure of the budget for any output is only to the tune of the actual performance achieved.
This is the budget facilitates not only to have comparison in between various levels of production
but also to identify the level of lowest production cost.
Utilities of the flexible budget:
1. This budget is most useful tool of analysis in studying the sales at when the circumstances
are not warranting to predict.
2. It is mostly suited to the seasonal business, where the sales volume is getting differed
from one period to another due to changes taken place in the taste and preferences of the
buyers.
3. The production is being done on the basis of demand of the products in the market. The
demand of the products is studied only through demand forecasting. The flexible budget
is more applicable in the case of products, which are greatly finding difficult to forecast
the demand.
4. The budget is prepared only during the time of acute shortage of resources of production
viz. Men, Material and so on.

Example: Draft a flexible budget for overhead expenses on the basis of following
information and determine the overhead rates at 70%, 80% and 90% plant capacity.

Particulars 70% capacity 80% capacity ( ) 90% capacity
Variable Overheads
Indirect Labour ----------------- 24,000 ----------------
Stores including spares ----------------- 8,000 ----------------
Semi-variable overheads ----------------- ----------------
Power 30% fixed ,70% variable 40,000
Repairs and maintenance ----------------- 4,000 ----------------
80% fixed and 20% variable
Fixed Overheads ----------------- -----------------
Depreciation 22,000
Insurance ----------------- 6,000 -----------------
Salaries ----------------- 20,000 -----------------
Total overheads ----------------- 1,24,000 -----------------

Flexible Budget for the Period
Particulars 70% capacity 80% capacity 90% capacity
Variable overheads
Indirect labour 21,000 24,000 27,000
Stores including spares 7,000 8,000 9,000
Semi-variable Expenses - Power*
Fixed 30% 8,000 8,000 8,000
**Variable 70%
28,000 32,000 36,000
Repairs and mainternance
***Fixed 80% 3,200 3,200 3,200
****Variable 20% 700 800 900

Fixed Overheads
Contd...
Depreciation 22,000 22,000 22,000
Insurance 6,000 6,000 6,000
Salaries 20,000 20,000 20,000
196 LOVELY PROFESSIONAL UNIVERSITY
Total Overheads 1,15,900 1,24,000 1,32,100