Solve this SID Product Bhd (SPB) is a manufacturer operating in Kuantan, Pahang. It produces variety ofhousehold products for the local and overseas market. FIB is currently operating below its fullcapacity due to the Covid 19 Pandemic. The slow recovery of the global economy is affectingits future operation. FIB is operating at 70% of its capacity, which represent 140,000 units of itsproducts. The different mixtures of its products will not affect the proportion of the resourcesused by FIB.The flexed budgets for the current year are as follows:Capacity level (units)100,000120,000140,000RMRMRMDirect materials1,800,0002,160,0002,520,000Direct labour2,620,0003,120,0003,620,000Production overhead1,300,0001,510,0001,720,000Selling & distribution overhead2,206,0002,606,0003,006,000Administrative overhead1,500,0001,500,0001,500,000Total costs9,426,00010,896,00012,366,000The Managing Director of SPB expects the global economy will pick up, which will mean betterprospect for next year. He has requested the management accountant to prepare a budget ifFIB operates at 180,000 units. The following information should be taken into consideration:1. Material costs will increase by 5% next year.2. RM120,000 of direct labour costs is the fixed salary for the production manager which willincrease by 7% next year. Other labour rate will remain the same.3. Production overhead and selling and administrative overhead are semi-variable costs.4. A warehouse rented at RM36,000 per annum will not be needed next year due to the policyof inventory reduction to reduce production cost. This rental is included in the selling anddistribution overhead.Required:(a)Prepare a flexible budget for next year based on forecasted activity of 180,000 units(b)Discuss on the effectiveness of participation in the budgeting process.

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Accounting

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Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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