Hi,
I just did the f2 mock exam and got stuck in question 27.
the question is as below:
AA Co has budgeted production of 40,000 units in december, and the budgeted costs are as follow:
Materials: $120,000
Labour: $200,000
Fixed overheads: $350,000
Actual production in December is 35,000 units.
What are the flexed budget total costs?
the answer is $550,000. and i have no idea how to get to this number.
can you please help?
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F2 mock exam q27
11y ago#1Hi Natalie,
Materials: the budget shows 120,000 for 40,000 units. So $3 per unit.
So for production of 35,000 units, the total cost flexes to 35,000 x $3 = $105,000
Labour: the budget shows 200,000 for 40,000 units. So $5 per unit.
So for production of 35,000 units, the total cost flexes to 35,000 x $5 = $175,000
Fixed overheads however do not change with the level of production (by definition) and so they will stay at $350,000 in the flexed budget.
So total flexed budget costs = 105,000 + 175,000 + 350,000 = $630,000
I have checked our test, and I am so sorry - it is a mistake in our answer and I have now corrected it :-(
I do apologise, thank you very much for letting me know.
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