Question

Tempo company's fixed budget (based on sales of 14,000 units) follows. The fixed budget sales (14,000 units × $208 per unit) is $2,912,000. The costs include direct materials $350,000, direct labor $616,000, indirect materials $392,000, supervisor salary $150,000, sales commissions $126,000, shipping $210,000, administrative salaries $200,000, depreciation–office equipment $170,000, insurance $140,000, and office rent $150,000. The income is $408,000.

1. Compute the total variable cost per unit.
2. Compute the total fixed costs.
3. Prepare a flexible budget at activity levels of 12,000 units and 16,000 units.

Answer 1

The total variable cost per unit is $41.14. The total fixed costs are $2,336,000. The flexible budget at activity levels of 12,000 units and 16,000 units would have total variable costs of $493,680 and $658,240, respectively.

Step-by-step explanation:

1. To compute the total variable cost per unit, you need to subtract the fixed costs from the total costs and then divide by the number of units. In this case, the fixed costs are $2,912,000 - ($350,000 + $616,000 + $392,000 + $150,000 + $126,000 + $210,000 + $200,000 + $170,000 + $140,000 + $150,000) = $2,912,000 - $2,336,000 = $576,000. The total variable cost per unit is $576,000 / 14,000 units = $41.14 per unit.
2. The total fixed costs can be calculated by subtracting the total variable costs from the total costs. In this case, the total fixed costs are $2,912,000 - $576,000 = $2,336,000.
3. To prepare a flexible budget at activity levels of 12,000 units and 16,000 units, you can use the same calculation as in the first step. For 12,000 units, the total variable costs would be $41.14 * 12,000 units = $493,680. And for 16,000 units, the total variable costs would be $41.14 * 16,000 units = $658,240.