Question

Sathre 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. Fixed Element per Month Variable Element per Well Serviced Revenue $ 4,500 Employee salaries and wages $ 56,400 $ 900 Servicing materials $ 700 Other expenses $ 35,400 When the company prepared its planning budget at the beginning of December, it assumed that 34 wells would have been serviced. However, 32 wells were actually serviced during December. The "Employee salaries and wages" in the flexible budget for December would have been closest to:

Answer 1

Answer:

The "Employee salaries and wages" in the flexible budget for December is $85,200

Explanation:

To compute the employee salaries and wages in the flexible budget we have to use the formula which is given below:

=  (Fixed element of employee salaries and wages) + (variable element of  employee salaries and wages × number of wells service during the year)

= ($56,400) + ($900 × 32 wells)

= $56,400 + $28,800

= $85,200

Other information which is given in the question is irrelevant, thus it is not considered in the computation part.

Hence, The "Employee salaries and wages" in the flexible budget for December is $85,200