Question

Greenwood Manufacturing Inc.’s static budget at 8,000 units of production includes $40,000 for direct labor and $48,000 for direct materials. Total fixed costs are $23,000. At 10,000 units of production, a flexible budget would show:

Answer 1

Answer: $133,000

Explanation:

Given the following ;

Total Direct labor cost= $40,000

Total Direct material cost= $48,000

Units produced = 8000

Total Fixed cost = $23,000

To enable budget flexibility, the variable inputs ( direct labor and direct material) of production should be expressed per unit.

Fixed cost aren't tampered with as they do not have direct impact on the cost of manufacturing goods. And increasing or decreasing the units produced will have no effect on the fixed cost.

Therefore,

Price per labor = total direct labor cost ÷ unit produced

Price per labor = $40,000÷8000 = $5

Price per material = total direct material cost ÷ unit produced

Price per material = $48,000 ÷ 8000 = $6

THEREFORE,

COST OF PRODUCING 10,000 UNITS

total direct labor cost =

10,000×$5 = $50,000

Total direct material cost = 10,000 × $6 = $60,000

Total fixed cost = $23,000

Total cost = $23,000 + $60,000+ $50,000 = $133,000

Answer 2

Answer:

Total cost= $133,000

Explanation:

Giving the following information:

Greenwood Manufacturing Inc.’s static budget at 8,000 units of production includes $40,000 for direct labor and $48,000 for direct materials. Total fixed costs are $23,000.

In a flexible budget, when production changes, we need to recalculate the cost of production. The costs that vary with production, in this case, are direct labor and direct material.

First, we need to calculate the unitary cost of direct labor and direct material:

Unitary direct labor cost= 40,000/8,000 units= $5 per unit

Unitary direct material cost= 48,000/8,000= $6 per unit

Now, we can determine the total cost:

Total cost= total direct labor + total direct material + fixed costs

Total cost= 5*10,000 + 6*10,000 + 23,000= $133,000