Question

22-25

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

	Fixed Element per Month		Variable Element per Customer Served			Actual Total for May
Revenue			$	5,700		$	209,500
Employee salaries and wages	$	64,000	$	1,100		$	106,400
Travel expenses			$	560		$	19,000
Other expenses	$	43,000				$	40,700

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

1. What amount of revenue would be included in Adger’s flexible budget for May?

2. What amount of employee salaries and wages would be included in Adger’s flexible budget for May?

3. What amount of travel expenses would be included in Adger’s flexible budget for May?

4. What amount of other expenses would be included in Adger’s flexible budget for May?

Answer 1

Solution :

1. Revnue in Flexible Budget = No. of Customer Served Actually * Budgeted Revenue per Cutomer

= 40 * $ 5,700

= $ 228,000.

2. Employee Salary and Wages = Budgeted Fixed Salary per Month + (Variable Salary per Customer Served * Actual Customer Served)     

= $ 64,000 + ($ 1,100 * 40)

= $ 108,000.

3. Travel Expenses = Variable Travelling expenses per Customer Served * Actual Customer Served

= $ 560 * 40

= $ 22,400.

4. Other Expenses = Budgeted Fixed Other Expenses per Month

= $ 43,000.

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