Question

Aaron's chairs is in the process of preparing a production cost budget for August. Actual costs...

Aaron's chairs is in the process of preparing a production cost budget for August. Actual costs in July for 120 chairs were:

Materials cost $4,500
Labor cost 2,660
Rent 1,500
Depreciation 2,500
Other fixed costs

3,200

Materials and labor are the only variable costs. If production and sales are budgeted to increase to 150 chairs in August, how much is the expected total variable cost on the August budget?

Homework Answers

Answer #1

Expected total variable cost on the August budget

The Variable cost consists of the materials cost and the Labor costs

Variable cost per chair = [Material cost + Labor Cost] / 120 Chairs

= [$4,500 + $2,660] / 120 Chairs

= $7,160 / 120 Chairs

= $59.67 per Chair

Therefore, the expected total variable cost on the August budget if production and sales are budgeted to increase to 150 chairs = 150 Chairs x $59.67 per chair

= $8,950

“Hence, the Expected total variable cost on the August budget would be $8,950”

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