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?
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”
Get Answers For Free
Most questions answered within 1 hours.