Question

Delicious Treats (DT) anticipated that 84,000 process hours would be worked during an upcoming accounting period when, in fact, 92,000 hours were actually worked. One of the company's cost functions is expressed as follows:

Y = $16PH + $640,000 where PH is defined as process hours

What budgeted dollar amount would appear in DT's static budget and flexible budget for the preceding cost function?

Static Flexible

A. $1,984,000 $1,984,000

B. $1,984,000 $2,112,000

C. $2,112,000 $1,984,000

D. $2,112,000 $2,112,000

E. None of the above.

Answer 1

For Delicious Treats' cost function Y = $16PH + $640,000, the static budget would be $1,984,000 based on 84,000 anticipated process hours. The flexible budget would be $2,112,000 based on the actual 92,000 hours worked. Thus, the correct answer is Option B.

Step-by-step explanation:

The student has asked about the budgeted dollar amount appearing in Delicious Treats (DT)'s static budget and flexible budget based on a given cost function. The cost function provided is Y = $16PH + $640,000, where PH represents process hours.

To find the budgeted amounts for the static and flexible budgets, we apply the given cost function separately using the anticipated process hours (84,000) for the static budget and the actual process hours worked (92,000) for the flexible budget.

For the static budget, using the anticipated process hours, the calculation would be:

Y = $16(84,000) + $640,000 = $1,344,000 + $640,000 = $1,984,000

For the flexible budget, using the actual process hours worked, the calculation would be:

Y = $16(92,000) + $640,000 = $1,472,000 + $640,000 = $2,112,000

Therefore, the answer to the question is Option B: $1,984,000 for the static budget and $2,112,000 for the flexible budget.