How can I complete a flexible budget for a corporation?

morgaine300

You should have both variable and fixed costs. The variable costs will have to be figured out separately for each production level. (Or hours or sales units, or whatever your budget is for.) The fixed will be the same for each level.

i.e. if direct materials are $5 per unit and you have to do a budget for 10,000; 15,000 & 20,000 production levels, then you'll have to figure the total costs for materials for each of those levels. ($5 x 10,000, etc.) Same with anything that is variable. I don't know if you're doing a production budget or overall budget. You could just as easily have selling & admin expenses in there -- as long as they're variable (per unit), then you need to do this.

Then if, say, you have $100,000 of annual depreciation, that's fixed. So the $100,000 would go under the 10K, 15K and 20K production units, because it doesn't change.

You should have examples in your book of what they should look like. Format can be different among books, plus I don't know what kind of budget this is, so I can't really tell you that part.

If you want to post your problem & whatever you've come up with, someone can check it for you. But without more info, that's about the most I can tell you.

nervouzpeoples

Do you have a suggestion? This is for a fictitious corporation that I must come up with. How can I possibly come up with a flexible budget for a coffee corporation without totals? I have no way to get their financials.

morgaine300

This information wouldn't be in a company's financials anyway, because it's internal stuff. Not to mention that it's a budget, not actual numbers.

So you're saying that not only is the company fictitious but that you have been given nothing?? You're just making up all the numbers yourself?

Well, I'm not going to just do it for you, but I can try to give some ideas. Is there a significance in the fact that it's supposed to be a coffee company? Because I certainly wouldn't be able to do anything realistic.

If it's coffee, it's likely going to be in... well, let's say it's a company selling directly to retail stores and they're selling... uh, how much does coffee weight? :-) Well, let's just make it easy and say it's a pound can.

Make up like three levels of pound cans that you would produce.

I don't know how detailed you're supposed to get. If it can be kept simple, you can make four categories: direct materials, direct labor, variable overhead and fixed overhead. You'll then have to make up a price of materials per pound, and a labor cost per pound, and a variable overhead per pound. Since I don't make coffee, I wouldn't have a clue what these numbers even should be. Since the retailer is making a profit, and the coffee company is making a profit to the retailer, cost might not be more than a couple of bucks in total per pound. (Full absorption costing that is.)

Then you have to have a fixed overhead, which would remain the same for all the production levels.

You haven't said if it's just a production budget or you have to have a completed budgeted income statement. That's starting to get into whether you're doing absorption or variable costing, and you'll have to be making up sales prices and everything else.

You can use these suggestions to get yourself started, but really, without knowing exactly what you need to be doing, I wouldn't know where to go from there. I'm coming into this totally blind, w/out having any idea what you have or have not already learned, or what exactly this budget is supposed to be, etc. I only know that with a flexible budget, they're basing it on different production/sales levels, rather than just budgeting for one fixed production amount. The only way to do that is to separate your variable from your fixed.