Question

A company produces alternators for cars. They generally use a static budget with the following costs based on 8,000 units per month: Indirect materials, $22,000; Indirect labor, $25,000; Utilities, $12,000; Supervision, $4,000; Depreciation, $18,000. If the company wanted to create a flexible budget for 9,000 units, what value would they record for variable costs? a) $52, 875 b) $91, 125 c) $70, 875 d) $66, 375

Answer 1

The correct answer is a) $52, 875.

Step-by-step explanation:

To calculate total variable cost that will be incurred on production 9000 units we will first calculate variable cost per unit and then multiply the result with 9000 units.

In the problem indirect material and indirect labor are variable cost their sum will be divided by 8000 units and than multiply by 9000 unit to get the answer. Detail calculation is given below.

Total Variable Cost = 22,000 + 25,000 = $ 47,000-A

VC per unit (8000 units) = A/8000 = $ 5.857 per unit -B

Total VC (9000 units) = B * 9000 = $ 52,875