Based on predicted production of 26,000 units, a company anticipates $507,000 of

Question

Based on predicted production of 26,000 units, a company anticipates $507,000 of fixed costs and $448,500 of variable costs. The flexible budget amounts of fixed and variable costs for 24,000 units are (Do not round intermediate calculations):

a.$468,000 fixed and $414,000 variable.

b.$414,000 fixed and $507,000 variable.

c$468,000 fixed and $448,500 variable.

d$507,000 fixed and $448,500 variable.

e$507,000 fixed and $414,000 variable.

Based on predicted production of 26,000 units, a company anticipates $507,000 of fixed costs and $448,500 of variable costs. The flexible budget amounts of fixed and variable costs for 24,000 units are (Do not round intermediate calculations):

Explanation / Answer

Solution:

the Correct answer is e.) $507,000 fixed and $414,000 variable

Flexible Budget means the budget prepared on the basis of actual output at standard cost.

We need to know nature of Variable Cost and Fixed Cost..

Fixed Cost in totality will remain same irrespective of output level. it means fixed cost in total does not change according to output level or production.

Variable Cost --- per unit variable cost remain same for any output level. Varaible Cost in totality varies with the output of production volume.

Hence, in this question fixed cost $507,000 will remain same for 24,000 Units

and Variable Cost vary with the output. Since we need to calculate amount of variable cost as per flexible budget, first we need to calculate per unit standard variable cost at predicted production.

Standard Variable Cost per unit = $448,500 / 26,000 Units = $17.25

Variable Cost for 24,000 Units = 24,000 Units x Per Unit Standard Variable Cost = 24,000 Units x 17.25 = $414,000

Hence the correct answer is e.) $507,000 fixed and $414,000 variable

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