budgeting

Dear john, I hope you are Healthy and happy. I had a confusion about preparing flexed budget.

Let me write the data:-

Fixed budget :

sales – 10,000
production – 13,000

materials – 50,000 , labour – 25,000 , variable O/H – 12,500 , Fixed O/H – 10,000

Actual results :

sales 12,000 , Production – 15,000

materials – 60,000 , labour – 28,500 , Var. O/H – 15,000 ,Fixed O/H – 10,000

Its the same example from the notes/lecture but i had doubt that when we calculate flexed budget , do we divide the variable costs by Sales or production to calculate cost per unit which is later used to calculate flexed budget.

A) Like for Material – 50,000/10,000(sales) = $ 5 p.u

and when calculating flexed budget , I would simply multiply this cost with actual sales which is 12,000 i.e 5*12000 = $ 60,000

B) Material – 50,000/13,000(production) = $ 3.85 p.u

and flexed budget material cost will be – 3.85 * 16,000 ( production ) = $ 61,600

So You see, I am not sure whether we divide total variable cost by original budget sales or production and then multiply it with actual sales or production.
In original example, in notes/lectures both sales and production were same, so i didn’t knew which we were dividing with.