Question

Young Corporation has a high probability of operating at 40,000 activity hours during the upcoming period, and lower probabilities of operating at 30,000 hours and 50,000 hours. The company's flexible budget revealed the following:

30,000 Hours 40,000 Hours 50,000 Hours

Variable costs $135,000 $180,000 $225,000

Fixed costs 720,000 720,000 720,000

Young's flexible-budget formula, where Y is defined as total cost and AH represents activity hours, is:

A. Y = $4.50AH + $24AH.

B. Y = $4.50AH + $720,000.

C. Y = $22.50AH.

D. Y = $180,000 + $18AH.

E. Y = $945,000.

Answer 1

The flexible-budget formula for Young Corporation is Y = $4.50AH + $720,000, where Y represents total cost and AH represents activity hours. The formula calculates the total cost based on the variable cost per hour of activity and the fixed costs.

Step-by-step explanation:

The flexible-budget formula for Young Corporation is Y = $4.50AH + $720,000. This formula represents the total cost (Y) as a function of the activity hours (AH). The $4.50 represents the variable cost per hour of activity, and the $720,000 represents the fixed costs. By plugging in the different activity hours (30,000, 40,000, and 50,000) into the formula, you can calculate the total cost for each scenario.