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Hi Mr. John,
I just have a small doubt in this question.
I just want to know how they got $2000 for Direct material and $1500 for Direct labour.
25.11) CA Co manufactures a single product and has drawn up the following flexed budget for the year.
60% 70% 80%
$ $ $
Direct materials 120,000 140,000 160,000
Direct labour 90,000 105,000 120,000
Production overhead 54,000 58,000 62,000
Other overhead 40,000 40,000 40,000
Total cost 304,000 343,000 382,000
What would be the total cost in a budget that is flexed at the 77% level of activity?
The direct materials are the direct labour are both variable costs.
Therefore the material cost per % is 120,000/60 = $2,000 (and is the same whichever of the three levels you try.
Similarly, the labour cost per % is 90,000/60 = $1,500 (and is again the same whichever of the three levels that you try).