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

$70,875

Step-by-step explanation:

By definition, a flexible budget is when a budget has been adjusted or flexed to accommodate the changes in the level of activity.

If the company wanted to create a flexible budget for 9,000 units, then the value that would be recorded for variable costs will be:

Indirect materials, $22,000/8000*9000 = 24,750;

Indirect labor, $25,000/8000*9000 = 28,125 ;

Utilities, $12,000/8000*9000 = 13,500;

Supervision, $4,000/8000*9000=4,500

Total of variable costs = ........................70,875