Question

Exercise 16-24 (Static) Flexible Budget (LO 16-2)

Use the given data shown in the graph.

Costs Master budget ---------------------- $ 120,000 $ 120,000 Flexible budget line F -------------- $ 80,000 -------- ----- Actual costs $ 40,000 8,000 units Actual activity 10,000 units Planned activity Activity per month

Required:

a. What is the budgeted fixed cost per period?

b. What is the budgeted variable cost per unit?

c. What is the value of F (that is, the flexible budget for an activity level of 8,000 units)?

d. What is the flexible budget cost amount if the actual activity had been 16,000 units?

	a. Budgeted fixed cost b. Budgeted variable cost per unit c. Value of F d. Flexible budget cost

Answer 1

a	Budgeted fixed cost per period
	If you will see the chart then you would find that the company will be incurring $ 40000 even if the company is not producing even in the single unit of the products
	Then, the budgeted fixed cost per period	$40,000
b	Budgeted variable cost per period
	If you will see the master plan the cost is $ 120,000 and the budgeted units is 10,000. Out of $ 120000, $40000 is fixed cost and the balance is $ 80000 is variable cost
	Variable cost per unit = $80000/10000	$8
c	Flexible Budget (8000 units)
	Fixed cost	$40,000
	Variable cost = 8000 Units * 8	$     64,000
		$104,000
	Note: Fixed cost will remain in any case . Since the cost is sunk cost
d	Flexible Budget (16000 units)
	Fixed cost	$40,000
	Variable cost = 16000 Units * 8	$   128,000
		$168,000
	Note: Fixed cost will remain in any case . Since the cost is sunk cost