Question

Exercise 9-1 Prepare a Flexible Budget [LO9-1]

Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:

Puget Sound Divers Planning Budget For the Month Ended May 31
Budgeted diving-hours (q)		250
Revenue ($380.00q)	$	95,000
Expenses:
Wages and salaries ($11,800 + $128.00q)		43,800
Supplies ($4.00q)		1,000
Equipment rental ($2,300 + $23.00q)		8,050
Insurance ($3,800)		3,800
Miscellaneous ($540 + $1.44q)		900
Total expense		57,550
Net operating income	$	37,450

During May, the company’s actual activity was 240 diving-hours.

Required:

Prepare a flexible budget for May. (Round your answers to the nearest whole dollar.)

Answer 1

Flexible budget are budgeted costs for actual output. The difference between flexible costs and budgeted costs are called activity variances.

Flexible budget for May

q=240

	Flexible Budget
budgeted diving hours	240
Revenue ($380.00q)	$91,200($380*240)
expenses
Wages and salaries	$42,520($11,800+$128*240)
supplies	$960($4*240)
equipment rent	$7,820($2,300+$23*240)
Insurance	$3,800	it is fixed cost so it will remain same for budgeted and flexible.
Miscellaneous	$886($540+$1.44*240)
Total expenses	$55,986	($42,520+$960+$7,820+$3,800+$886)
Net income	$35,214	[$91,200-$55,986]