Question

Chelsa Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show a. variable costs of $64,000, and $28,000 of fixed costs b. variable and fixed costs totaling $107,000 c. variable costs of $64,000, and $23,000 of fixed costs d. variable costs of $72,000, and $23,000 of fixed costs

Answer 1

Answer:

d. Variable costs of $72,000 and $23,000 fixed costs

Explanation:

No matter whatever the budget is fixed cost remains constant as that is not  proportionate to change in value of output, therefore in any case it will remain constant to $23,000

Whereas variable cost changes with change in level of output.

Here, level of output = 8,000

Variable cost will be $\frac{40,000}{5,000} X 8,000 = 64,000$

Variable cost of electricity = $\frac{5,000}{5,000} \times 8,000$ = 8,000

Total variable = $64,000 + $8,000

= $72,000

Therefore total variable = $72,000

Fixed = $23,000