Question

Based on predicted production of 24,000 units, a company anticipates \(300,000 of fixed costs and \)246,000 of variable costs. If the company actually produces 20,000 units, what are the flexible budget amounts of fixed and variable costs?

Short answer

The variable cost for 20,000 units’ production is$205,000.

The fixed cost for 20,000 units’ production is$300,000.

Step-by-step solution

Meaning of Costs

Costs are the expenses incurred by a business concern to acquire or produce goods and services. Costs are bifurcated into two major categories for making effective decisions:variable and fixed costs.

Determination of fixed and variable costs

Flexible Budget
Particulars	Variable cost per unit	Total fixed cost	24,000 units	20,000 units
Variable cost (Working notes)	10.25		246,000	205,000
Fixed cost		300,000	300,000	300,000
Total budgeted cost			$546,000	$505,000

Working Notes:

Computation of variable cost per unit:

$$\begin{gathered} \mathbf{Variable}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\mathbf{=}\frac{\mathbf{Variable}\mathbf{}\mathbf{cost}}{\mathbf{Budgeted}\mathbf{}\mathbf{units}}\mathbf{\times }\mathbf{Actual}\mathbf{}\mathbf{units} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{246}\mathbf{,}\mathbf{000}}{\mathbf{24}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units}}\mathbf{\times }\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{}\mathbf{units} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{.}\mathbf{25}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit} \end{gathered}$$