- This topic has 11 replies, 4 voices, and was last updated 9 years ago by
.
- Posts
Good day sir
Can you kindly solve the following question for me please.
Q5. The budgeted costs for X Co for June are as follows:
Sales 20,000 units
Materials $120,000
Labour $200,000
Fixed overheads $350,000
Total cost $670,000If the budget is flexed for 30,000 units what will be the budgeted total cost?
Thank you sir
The variable costs are materials and labour. You can flex these by multiplying by 30000/20000.
The fixed costs will remain at 350,000 by definition, and so the total cost will be the flexed variable costs plus 350,000.
No 🙂
You calculate the answer and I will tell you if you are correct!
(I have told you exactly what you need to do)Hi John,
1) Trust in this case you are using a Marginal costing approach.
Since if its a case of Absorption costing then the Fixed overheads would be based on a standard absorption rate and even in the flexed budget the absorption of Fixed overheads would be on Actual quantities produced.( In this case 30000 Units).
2) Also wanted to check if you agree and you have used Marginal costing approach, what is the basis of such assumption ?
Kindly clarify.
Thanks
AmitYes – we are using the marginal costing approach.
It is not really a question of an assumption. It is that by definition fixed costs are not affected by the level of activity.
- You must be logged in to reply to this topic.