Question

Letts Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During January, the company budgeted for 7,000 units, but its actual level of activity was 6,970 units. The company has provided the following data concerning the formulas to be used in its budgeting: Fixed element per month Variable element per unit Revenue − $ 30.40 Direct labor $ 0 $ 6.10 Direct materials 0 8.70 Manufacturing overhead 46,700 1.80 Selling and administrative expenses 27,800 0.20 Total expenses $ 74,500 $ 16.80 The selling and administrative expenses in the planning budget for January would be closest to:

Answer 1

Total Selling and administrative expenses $29200

Step-by-step explanation:

Letts Corporation Manufacturers

Fixed element per month Variable element per unit

Revenue − $ 30.40

Direct labor $ 0 $ 6.10

Direct materials 0 8.70

Manufacturing overhead 46,700 1.80

Selling & admin. expenses 27,800 0.20

Total expenses $ 74,500 $ 16.80

We multiply the variable cost per unit with the planned number of units to get the variable budgeted cost. Fixed cost will however remain unchanged.

Cost = Fixed Cost + Variable Cost per unit * No Of units

Fixed Selling and administrative expenses $ 27,800

Variable Selling and administrative expenses 0.20*7000= $ 1400

Total Selling and administrative expenses $29200