The demand for output of a certain company is very elastic and a modern plant recently installed is capable of greatly increased production. Output at present is 80,000 units per year, and 5 lakh units are estimated to be within the capacity of the new plant. The present selling price per unit is `15. The need for flexible budgeting is recognised and six alternative levels of output, in addition to the present level, are contemplated. Six equal increments in annual output level, up to a maximum of 5,00,000 units, would involve corresponding reductions of `1 each in unit price to `9 per unit at the maximum output. The present variable costs amount to `4,00,000. Fixed costs which at present amount to `2,00,000 are not expected to increase for any of the six alternative output levels contemplated. Semi-fixed cost are expected to vary from the present annual figure of `2,30,000 to `3,20,000, the upward steps being to `2,60,000 at 2,20,000 units, `2,80,000 at 3,60,000 units, and `3,20,000 at 5,00,000 units. The costs classified as variable at the six projected levels of output are calculated to be as follows:
Prepare the flexible budget and identify the volume which should be set for the budgeted output.