Flexible Budgets - Managerial Accounting

1. What is the total amount of manufacturing cost that would appear in a flexible budget for June?
   Answer: $156,000 The flexible budget adjusts variable costs for the actual level of production while keeping total fixed costs constant. 1. Calculate total variable costs in the static budget: $50,000 (DM) + $40,000 (DL) + $15,000 (VOH) = $105,000. 2. Calculate the variable cost per unit: $105,000 ÷ 5,000 units = $21 per unit. 3. Calculate total variable costs for the flexible budget: $21 per unit × 6,000 actual units = $126,000. 4. Add fixed costs (which remain constant): $126,000 + $30,000 = $156,000.
2. What is the flexible budget for total manufacturing overhead in June?
   Answer: $192,000 The flexible budget calculation should use the actual activity level with the predetermined cost formula. Actual costs and static budget totals for the original activity level are distractors. 1. Calculate budgeted variable overhead: Variable rate Actual activity = $4.00 per DLH 33,000 DLH = $132,000. 2. Identify budgeted fixed overhead: The fixed overhead is $60,000 regardless of the activity level within the relevant range. 3. Calculate total flexible budget overhead: $132,000 (variable) + $60,000 (fixed) = $192,000.
3. What is the total contribution margin that would be shown on a flexible budget for May?
   Answer: $180,000 The flexible budget recalculates revenues and variable costs for the actual level of activity. The contribution margin is the difference between these two flexed amounts. 1. Calculate the budgeted contribution margin per unit from the static budget: $160,000 / 8,000 units = $20 per unit. 2. Calculate the total contribution margin for the flexible budget using the actual activity level: $20 per unit * 9,000 units = $180,000. Alternatively: 1. Sales price per unit = $400,000 / 8,000 = $50. 2. Variable cost per unit = $240,000 / 8,000 = $30. 3. Flexible budget sales = $50 * 9,000 = $450,000. 4. Flexible budget variable costs = $30 * 9,000 = $270,000. 5. Flexible budget contribution margin = $450,000 - $270,000 = $180,000.
4. Assuming the company sold all units produced, what would be the total budgeted cost on a flexible budget for April?
   Answer: $232,000 A flexible budget adjusts the static budget for the actual level of activity. The calculation requires flexing the variable costs and keeping fixed costs the same. 1. Calculate total variable cost per unit: $6.00 (materials) + $4.00 (labor) + $2.50 (variable OH) + $1.00 (commissions) = $13.50 per unit. 2. Calculate total variable costs for the actual activity level: $13.50 per unit * 12,000 units = $162,000. 3. Identify total fixed costs: $50,000 (fixed OH) + $20,000 (fixed S&A) = $70,000. 4. Calculate total flexible budget cost: $162,000 (total variable) + $70,000 (total fixed) = $232,000.
5. At 10,000 machine hours, a company's flexible budget for factory utilities is $38,000. At 15,000 machine hours, the flexible budget for the same cost is $52,000. What would be the total flexible budget amount for factory utilities at 12,000 machine hours?
   Answer: $43,600 This problem requires determining the cost formula (variable and fixed components) from two data points and then applying it to a new activity level. 1. Calculate the variable rate per machine hour: (Cost at high activity - Cost at low activity) / (High activity - Low activity) = ($52,000 - $38,000) / (15,000 - 10,000) = $14,000 / 5,000 hours = $2.80 per machine hour. 2. Calculate the fixed cost: Total cost at low point - (Variable rate Low activity) = $38,000 - ($2.80 10,000) = $38,000 - $28,000 = $10,000. 3. Calculate the flexible budget for 12,000 hours: Fixed Cost + (Variable Rate 12,000 hours) = $10,000 + ($2.80 12,000) = $10,000 + $33,600 = $43,600.
6. What is the flexible budget amount for indirect labor for March?
   Answer: $38,750 The flexible budget applies the cost formula to the actual activity level for the period in question (March). The annual static budget information is extraneous. 1. Identify the cost formula: Cost = $15,000 + ($2.50 * Direct Labor Hours). 2. Identify the actual activity for March: 9,500 direct labor hours. 3. Calculate the flexible budget: $15,000 + ($2.50 * 9,500) = $15,000 + $23,750 = $38,750.
7. In a flexible budget prepared for the actual production volume, how does the budgeted total manufacturing cost per unit compare to the budgeted cost per unit in the static budget?
   Answer: It is higher than the static budget per-unit cost. This question tests the understanding of how average fixed costs affect total cost per unit when activity levels change. 1. Static budget per-unit cost: Total Cost = $500,000 + ($75 10,000) = $1,250,000 * Cost per unit = $1,250,000 / 10,000 units = $125.00 2. Flexible budget per-unit cost: Total Cost = $500,000 + ($75 9,000) = $1,175,000 * Cost per unit = $1,175,000 / 9,000 units = $130.56 3. Comparison: The flexible budget cost per unit ($130.56) is higher than the static budget cost per unit ($125.00). This is because the same amount of fixed cost is spread over fewer units.
8. What is the total flexible budget for S&A expenses for Q1?
   Answer: $388,000 The flexible budget for S&A expenses must be calculated by applying the cost formulas for each component to the actual activity level of 24,000 units sold. 1. Calculate actual sales revenue: 24,000 units * $40/unit = $960,000. 2. Calculate flexible budget sales commissions: 5% * $960,000 = $48,000. 3. Calculate flexible budget marketing costs: $50,000 + ($5/unit * 24,000 units) = $50,000 + $120,000 = $170,000. 4. Identify fixed executive salaries: $120,000. 5. Sum the components: $48,000 + $170,000 + $120,000 = $388,000.
9. What is the total monthly budgeted cost when annual passenger miles are projected at 12 million?
   Answer: $835,000 Annual activity = 12 million passenger miles. Monthly activity = 12,000,000 ÷ 12 = 1,000,000 passenger miles. Monthly variable costs = (0.35 + 0.28 + 0.12) × 1,000,000 = $750,000. Monthly insurance = 180,000 ÷ 12 = $15,000. Monthly administrative = (240,000 ÷ 12) + (0.05 × 1,000,000) = 20,000 + 50,000 = $70,000. Total monthly cost = 750,000 + 15,000 + 70,000 = $835,000. Choice A omits the variable portion of administrative costs. Choice C uses incorrect variable rate of $0.70 instead of $0.80. Choice D includes an extra $5,000 in costs.
10. What is the total flexible budget amount?
    Answer: $428,800 This problem requires separating the total static budget cost into its variable and fixed components and then flexing the variable portion to the new activity level. 1. Calculate total variable and fixed costs in the static budget: * Variable Costs = $400,000 × 60% = $240,000 * Fixed Costs = $400,000 × 40% = $160,000 2. Calculate the variable cost per unit: $240,000 ÷ 25,000 units = $9.60 per unit. 3. Calculate total variable costs for the flexible budget: $9.60 per unit × 28,000 units = $268,800. 4. Calculate total flexible budget: $268,800 (variable) + $160,000 (fixed) = $428,800.
11. Alpine Resort's restaurant operates with the following monthly cost structure: Food costs vary at $18 per customer served. Labor costs include a base of $15,000 plus $8 per customer served. Utilities have a minimum charge of $1,200 plus $1.50 per customer served. Other fixed costs are $12,000 per month. In preparing flexible budgets for 2,000, 2,500, and 3,000 customers, what is the budgeted cost per customer at the 2,500 customer level?
    Answer: $40.48 per customer At 2,500 customers: Variable costs = (18 + 8 + 1.50) × 2,500 = $68,750. Fixed costs = 15,000 + 1,200 + 12,000 = $28,200. Total cost = 68,750 + 28,200 = $96,950. Cost per customer = 96,950 ÷ 2,500 = $38.78. Wait, let me recalculate: Food = 18 × 2,500 = $45,000; Labor = 15,000 + (8 × 2,500) = $35,000; Utilities = 1,200 + (1.50 × 2,500) = $5,000; Other fixed = $12,000. Total = 45,000 + 35,000 + 5,000 + 12,000 = $101,200. Per customer = 101,200 ÷ 2,500 = $40.48. Choice A omits fixed labor costs. Choice B uses incorrect utility calculation. Choice D includes an extra $3,250 in costs.
12. What is the total shipping cost that should appear in the company's flexible budget for May?
    Answer: $85,000 The flexible budget is prepared using the actual level of activity. The static budget information and actual cost incurred are distractors. 1. Identify the cost formula: Total Cost = $28,000 + ($1.50 * Packages Shipped). 2. Identify the actual activity level: 38,000 packages. 3. Apply the formula: $28,000 + ($1.50 * 38,000) = $28,000 + $57,000 = $85,000.
13. What is the total flexible budget for manufacturing costs for the first quarter?
    Answer: $1,230,000 The key is to correctly handle the fixed manufacturing overhead. The per-unit fixed cost is based on the master budget volume and should not be used to budget costs at a different activity level. 1. Calculate total fixed manufacturing overhead for the year: $10/unit * 100,000 units = $1,000,000. 2. Calculate fixed manufacturing overhead for one quarter: $1,000,000 / 4 quarters = $250,000. 3. Calculate the variable manufacturing cost per unit: $45 (total) - $10 (fixed) = $35 per unit. 4. Calculate total variable costs for the quarter: $35/unit * 28,000 units = $980,000. 5. Calculate total flexible budget manufacturing cost: $980,000 (variable) + $250,000 (fixed) = $1,230,000.
14. What is the total flexible budget amount for the sum of direct labor and manufacturing overhead?
    Answer: $366,000 This requires calculating the flexible budget for two separate costs, one variable and one mixed, and then summing them. 1. Analyze Direct Labor (DL): It is purely variable. The rate is $140,000 / 20,000 DLH = $7 per DLH. The flexible budget for DL is $7 * 22,000 DLH = $154,000. 2. Analyze Manufacturing Overhead (MOH): It is mixed. Total MOH = $200,000. Fixed MOH = $80,000. Therefore, Variable MOH in static budget = $200,000 - $80,000 = $120,000. The variable MOH rate is $120,000 / 20,000 DLH = $6 per DLH. 3. Calculate Flexible Budget for MOH: Fixed MOH + (Variable MOH rate Actual DLH) = $80,000 + ($6 22,000 DLH) = $80,000 + $132,000 = $212,000. 4. Calculate Total Flexible Budget: Flexible DL + Flexible MOH = $154,000 + $212,000 = $366,000.
15. What is the total cost in the laboratory's flexible budget for the month?
    Answer: $317,000 The flexible budget must be calculated for each cost element based on the actual activity level of 9,000 tests. 1. Technician salaries (fixed): This cost does not change with activity. Flexible budget amount = $90,000. 2. Test kits & supplies (variable): First, find the per-unit cost from the static budget: $160,000 / 8,000 tests = $20 per test. Then, calculate the flexible budget amount: $20 per test * 9,000 tests = $180,000. 3. Equipment maintenance (mixed): Apply the given cost formula to the actual activity level: $20,000 + ($3.00 per test * 9,000 tests) = $20,000 + $27,000 = $47,000. 4. Total flexible budget cost: Sum the budgeted amounts: $90,000 + $180,000 + $47,000 = $317,000.
16. What is the total flexible budget for overhead for August?
    Answer: $239,500 The flexible budget must be calculated for each overhead pool using its own activity driver's actual level. 1. Calculate flexible budget for machine-driven overhead: $50,000 + ($12 per MH × 11,000 actual MH) = $50,000 + $132,000 = $182,000. 2. Calculate flexible budget for setup-driven overhead: $20,000 + ($500 per setup × 75 actual setups) = $20,000 + $37,500 = $57,500. 3. Calculate total flexible budget overhead: $182,000 + $57,500 = $239,500.
17. What is the total budgeted cost at 10,000 machine hours?
    Answer: $557,000 At 10,000 machine hours: Variable costs = (15 + 25 + 3 + 2) × 10,000 = $450,000. Fixed overhead = 45,000 + 32,000 + 18,000 = $95,000. Step-fixed maintenance = $12,000 (since 10,000 > 9,000). Total = 450,000 + 95,000 + 12,000 = $557,000. Choice A incorrectly uses $8,000 for maintenance. Choice B omits maintenance costs entirely. Choice D uses an incorrect variable cost rate of $40 per hour instead of $45.
18. If the company originally planned for 3,000 service calls but actually completed 3,200 service calls, what is the difference between the original static budget total cost and the flexible budget total cost for the actual activity level?
    Answer: $3,360 higher flexible budget cost Static budget (3,000 calls): Variable = (4 + 12) × 3,000 = $48,000; Semi-variable = 2,400 + (0.80 × 3,000) = $4,800; Fixed = $28,000; Total = $80,800. Flexible budget (3,200 calls): Variable = 16 × 3,200 = $51,200; Semi-variable = 2,400 + (0.80 × 3,200) = $4,960; Fixed = $28,000; Total = $84,160. Difference = 84,160 - 80,800 = $3,360. Choice B ignores semi-variable costs. Choice C incorrectly treats telephone base charge as variable. Choice D double-counts the variable cost difference.
19. What is the electricity cost that would appear on the flexible budget?
    Answer: $43,000 The flexible budget is calculated by applying the cost formula to the actual level of activity. The static budget amount and the actual cost incurred are distractors. 1. Identify the cost formula: Cost = $10,000 + ($0.60 * Machine Hours). 2. Identify the actual activity level: 55,000 machine hours. 3. Calculate the flexible budget amount: $10,000 + ($0.60 * 55,000) = $10,000 + $33,000 = $43,000.
20. What is the flexible budget amount for maintenance supplies at the actual activity level of 4,800 service hours?
    Answer: $20,400 This is a multi-step problem that requires first determining the cost formula for the mixed cost (maintenance supplies) using the high-low method, and then applying that formula to the actual activity level. 1. Calculate the variable cost per service hour: Change in cost / Change in activity = ($21,000 - $18,000) / (5,000 hours - 4,000 hours) = $3,000 / 1,000 hours = $3.00 per hour. 2. Calculate the total fixed cost: Using the 4,000-hour level: Total cost - Total variable cost = $18,000 - (4,000 hours * $3.00/hour) = $18,000 - $12,000 = $6,000. 3. Prepare the flexible budget for the actual activity level: Total fixed cost + (Variable cost per hour Actual hours) = $6,000 + ($3.00 4,800) = $6,000 + $14,400 = $20,400.

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