- October 27, 2021 at 4:54 pm #639250lokeshdh00Participant
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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.October 28, 2021 at 7:58 am #639277John MoffatKeymaster
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In a flexed profit statement we subtract the cost of sales from the revenue, and the cost of sales is the opening inventory plus the cost of production less the closing inventory.
The inventories are valued at standard cost, and therefore the cost of sales is the unit sales multiplied by the standard variable cost per unit (as I show in my lectures on marginal and absorption costing).
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