Kunda Limited manufactures one standard product. Currently it is operating on a normal activity level of 70% with an output of 6,300 units, although he sales director believes that a realistic forecast for the next budget period would be at a level of activity of 50%.
|Selling and distribution overheads||42,300||44,100||45,900|
Profit is 20% of selling price.
i. Prepare a flexible budget based on a 50% level of activity. (8 marks)
State two problems which may arise from such a change in the level of activity