Static budget cost is $108,800 while flexible budget cost is $133,424 due to variable cost adjustments for higher production volume.
How is that so?
In Miller and Sons' static budget for 10,400 units, direct costs (materials, labor, and variable utilities) total $93,100 ($39,200 + $46,800 + $7,100), while supervisor salaries add another $15,700 for a combined total cost of $108,800.
For their flexible budget of 12,800 units, direct costs climb to $114,584 ($48,246 + $57,600 + $8,738) and supervisor salaries increase to $18,840, pushing the total cost up to $133,424.
The difference between static and flexible budgets highlights the dynamic nature of cost behavior, where some costs adjust with production volume while others remain fixed. This information can be crucial for budgeting, decision-making, and evaluating cost efficiency.
Complete Question:
Miller and Sons' static budget for 10,400 units of production includes $39,200 for direct materials, $46,800 for direct labor, variable utilities of $7,100, and supervisor salaries of $15,700. A flexible budget for 12,800 units of production would show direct materials of $48,246, direct labor of $57,600, utilities of $8,738, and supervisor salaries of $18,840
total variable costs of $108,800Calculate the total cost for each scenario (static and flexible budgets). Round your final answer to the nearest dollar. Do not round interim calculations.