Question

Larance Detailing's cost formula for its materials and supplies is $1,870 per month plus $6 per vehicle. For the month of November, the company planned for activity of 82 vehicles, but the actual level of activity was 47 vehicles. The actual materials and supplies for the month was $2,250. The materials and supplies in the flexible budget for November would be closest to:

Answer 1

Since the question asks us to find the materials and supplies in the flexible buget, the formula will be as follows:

Cost = Fixed cost + (Variable cost per unit × q)

As per the above given formula let,

Fixed Cost be = $1870

Variable cost = $6 per vehicle

q = 47 vehicles which is the actual level of activity

Now lets break the formula with the available info.

Cost = Fixed cost + (Variable cost per unit × q)

= 1,870 + (6*47)

= 1,870 + 282

= $2,152

Therfore, The materials and supplies in the flexible budget for November would be closest to $ 2,152

Note: The reason why we are not considering the 82 vehicles in the calculation is because it represnts the planned activity and we will be using it for calculating planned budget and not flexible budget.