Question

Flexible Budget for Various Levels of Production

Budgeted amounts for the year:

Materials	2 leather strips @ $7.00
Labor	1.5 hr. @ $18.00
VOH	1.5 hr. @ $1.20
FOH	$6,800

Required:

1. Prepare a flexible budget for 3,500, 4,000, and 4,500 units.

Flexible Budget
	Variable Cost per Unit	3,500 units	4,000 units	4,500 units
Direct materials	$	$	$	$
Direct labor
Variable overhead
Fixed overhead
Total		$	$	$

2. CONCEPTUAL CONNECTION Calculate the unit cost at 3,500, 4,000, and 4,500 units. (Note: Round unit costs to the nearest cent.)

Unit cost at 3,500 units $

Unit cost at 4,000 units $

Unit cost at 4,500 units $

What happens to unit cost as the number of units produced increases?

The cost per unit  as the number of units produced increases because fixed cost is spread over a greater number of units.

Answer 1

Flexible Budgets
For the month year end
Units of Production	3500 units	4000 units	4500 units
Variable Costs:
Direct Material	$49,000	$56,000	$63,000
Direct labor	$94,500	$1,08,000	$1,21,500
Variable Overhead Costs	$6,300	$7,200	$8,100
Total Variable costs	$1,49,800	$1,71,200	$1,92,600
Fixed Costs:
Fixed Overhead Costs	$6,800	$6,800	$6,800
Total Fixed Costs	$6,800	$6,800	$6,800
Total Cost	$1,56,600	$1,78,000	$1,99,400
Cost per unit	$44.74	$44.50	$44.31
As the number of units increases the Cost per unit decreases.