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Dear sir,
Hope you are fine.
Grateful if you could sort this question for me.A manufactures a single product and an extract from their flexed budget for production cost is as follows.
Activity level 80% 90%
Material 2400 2700
Labour 2120 2160
Production overhead 4060 4080
Total 8580 8940What would the total production costs allowance be in a budget flexed at the 83% activity level? (To the nearest $)
A: 6266
B: 6888
C: 8586
D: 8688Thank you
Please do not simply set test questions and expect an answer. You must have an answer in the same book in which you found the question and so you should ask about whatever it is in the answer that you are not clear about. Then I will explain.
For each of the costs you need to use the high/low method (as explained in my free lectures) in order to calculate the variable cost per %. Then you can calculate the total cost for 83%.
The variable cost per % = (300 + 40 + 20)/(90 – 80) = $36.
The total cost for 80% is 2,400 + 2,120 + 4,060 = $8,580.
Therefore the total cost at 83% = 8,580 + (3 x $36) = $8,688.
Okay well noted. But actually I do not have the answer yet. I have come across this question in my crash course kit and I was unable to solve it. By the way thank you very much sir for your precious help.
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