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Flexible Budget for Various Levels of Production Budgeted amounts for the year: Materials 2 leather strips @ $7.00 Labor 1.52. CONCEPTUAL CONNECTION Calculate the unit cost at 3,500, 4,000, and 4,500 units. (Note: Round unit costs to the nearest cen

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Answer #1

Solution of the above problem is under:

1)

Flexible Budget
Particulars Variable Cost per Unit 3500 Units 4000 Units 4500 Units
Direct Material 2 leather strips @ $7 49000 56000 63000
Direct Labour 1.5 Hrs. @ $18 94500 108000 121500
Variable Overhead 1.5 Hrs. @ $1.20 6300 7200 8100
Fixed Overhead 6800 6800 6800
Total 156600 178000 199400
Cost per unit produced= (Total Cost/Units Produced) 44.74 44.50 44.31

2) Summary:

Unit Cost at 3500 Units= $44.74

Unit Cost at 4000 Units= $44.50

Unit Cost at 4500 Units= $44.31

As we can see from above (keeping Fixed Overhead Cost Constant), UNIT COST keeps on decreasing as the number of units produced increases. This is due to the fact that the fixed cost per unit decreases as the production increases highlighting the benefit of Economies of Scale.

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