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Sir when we make flexed budget the overhead remains the same as fixed budget by concept
But sir if there is closing inventory and since the overhead remains fixed how will we value closing inventory
Like if for 2000 units fixed budget is
Variable cost (total) : 20000
Fixed (total): 25000
Sales price :100 per unit
And if we want flexed budget of 3000 units produced and 2000 units sold
How will we do thatThe variable cost is 20,000/2,000 = $10 per unit.
So: Revenue (2,000 x $100) 200,000.
Cost of sales: Purchases (3,000 x $10) = 30,000, less closing inventory (1,000 x $10) = 10,000
Giving a cost of sales of $20,000.So contribution = 200,000 – 20,000 = 180,000.
Fixed costs are 25,000.
So the flexed profit is 180,000 – 25,000 = $155,000.
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