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Extracts from the flexible budgets of a manufacturing company are as follows:
Production and sales quantity 5000u 7000u
Budget cost allowance
Materials costs $50000 $70000
Labour costs $65000 $77000
Production overheads $80000 $84000
Administrative costs $35000 $35000
Selling and distribution costs $15000 $19000
Total cost allowance $245000 $285000What would be the total expenditure incurred in a period when 6000 units are produced and 5500 units are sold?
Rather than simply set me a question to do, it is better that you say what your problem is and then I will try and explain. (Presumably you have an answer in whichever book you found the question).
It should be clear that Materials are a variable cost – ($10 per unit)
Also, that administrative costs are a fixed cost ($35,000)
For the others, they are semi-variable (part variable and part fixed) and so you have to use the high/low approach to find out the variable cost per unit and the fixed cost.
So, for example, for production overheads the variable cost is (84000-80000)/(7000-5000) = $2 per unit. The fixed cost is 84000 – (7000 x 2) = 70,000(If you are unsure about the high/low approach then you need to watch the free lecture that goes with Chapter 4 of the free Lecture Notes).
Are you sure that you have typed the labour cost correctly and that it is not $55000 for 5,000 units? If it is, then it is simply a variable cost. If you have typed it correctly, then it is again a semi-variable cost.
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