Question

Appliance Possible Inc. (AP) is a manufacturer of toaster ovens. To improve control over operations, the president of AP wants to begin using a flexible budgeting system, rather than use only the current master budget. The following data are available for AP's expected costs at production levels of 90,000, 100,000, and 110,000 units. $6 per unit $4 per unit Variable costs Manufacturing Administrative Selling Fixed costs Manufacturing Administrative $3 per unit $160,000 $80,000 (a) Prepare a flexible budget for each of the possible production levels: 90,000, 100,000, and 110,000 units. (List variable costs before fixed costs.) APPLIANCE POSSIBLE INC. Flexible Production Cost Budget $ $

Answer 1

Appliance Possible INC.

Flexible Production Cost Budget

Activity level
Units	90,000	100,000	110,000
Variable cost (working notes)
Manufacturing	$540,000	$600,000	$660,000
Administrative	360,000	400,000	440,000
Selling	270,000	300,000	330,000
Total variable cost	1,170,000	1,300,000	1,430,000
Fixed cost
Manufacturing	160,000	160,000	160,000
Administrative	80,000	80,000	80,000
Total Fixed cost	240,000	240,000	240,000
Total Cost	$1,410,000	$1,540,000	$1,670,000

Working Note:

Calculation of variable costs

	90,000	100,000	110,000
Manufacturing	(90,000 * $6) = 540,000	(100,000 * $6) = 600,000	(110,000 * $6) = 660,000
Administrative	(90,000 * $4) = 360,000	(100,000 * $4) = 400,000	(110,000 * $4) = 440,000
Selling	(90,000 * $3)= 270,000	(100,000 * $3) = 300,000	(110,000 * $3) = 330,000