Question

Bailey Manufacturing Co.'s static budget at 10,000 units of production includes $60,000 for direct labor and $6,000 for electric power. Total fixed costs are $20,000. At 14,000 units of production, a flexible budget would show a.variable costs of $66,000 and $20,000 of fixed costs. b.variable and fixed costs totaling $120,400. c.variable costs of $92,400 and $28,000 of fixed costs. d.variable costs of $92,400 and $20,000 of fixed costs.

Answer 1

Answer:

d. variable costs of $92,400 and $20,000 of fixed costs.

Explanation:

Flexible Budget is a budget that has been adjusted to meet the actual level of activities (units produced) during the year.

Step 1 : Determine the Variable unit Costs

Direct Labor ($60,000 ÷ 10,000)  =  $6.00

Electric Power ($6,000 ÷ 10,000) =  $0.60

Total Variable Cost per unit          =  $6.60

Step 2 Determine Total Cost

Total Cost = Variable Cost + Fixed Cost

where x units are produced this will be :

Total Cost = $6.60x + $20,000

for 14,000 units produced this will be :

Total Cost =  $6.60 x 14,000 + $20,000

                 = $92,400 + $20,000

                 = $112,400

Conclusion :

The correct option is d. variable costs of $92,400 and $20,000 of fixed costs.