Prowse Corporation is an oil well service company that measures its output by th

Question

Prowse Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.

A total of 42 wells were actually serviced during October.

The “Other expenses” in the flexible budget for October would have been closest to:

Fixed Element per Month Variable Element per Well Serviced Revenue $ 4,000 Employee salaries and wages $ 43,800 $ 1,000 Servicing materials $ 600 Other expenses $ 38,200

Explanation / Answer

The correct answer is $ 38,200

Note : Since the Other expenses is fixed expense, hence it doesnot differ with the wells that were actually serviced during the month.

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