Question

Dealer Enterprises (DE) 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 DE'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 answers is correct.

Answer 1

The budgeted dollar amount in DE's static budget is $1,984,000 and in the flexible budget is $2,112,000. The correct answer is option B.

Step-by-step explanation:

The cost function for Dealer Enterprises (DE) is expressed as Y = $16PH + $640,000, where PH represents the process hours. To find the budgeted dollar amounts in the static and flexible budgets, we need to substitute the anticipated process hours (84,000) and the actual process hours (92,000) into the cost function.

Static Budget: Y = $16 * 84,000 + $640,000 = $1,984,000

Flexible Budget: Y = $16 * 92,000 + $640,000 = $2,112,000

Therefore, the budgeted dollar amount in DE's static budget is $1,984,000, and in the flexible budget is $2,112,000. The correct answer is option B.