Flexible budget

Are you sure year 2013 is $660,000 but not $880,000? I suppose year 2014 would be $1,188,000 for 25,000 with inflation 8%

The budget for 2014 should be $831,600 We need to separate Variable and fixed costs here 10V + F=400 20x1.1xV+1.1F=660

Assuming the inflation rate 12/13 is 10% and 13/14 is 8%: If the 2012 results had been achieved in 2013 the cost of the 10,000 units would have been 400,000 x 1.10 = 440,000. Now that inflation is out of the way we can analyse the effect of volume on cost Moving from 10,000 to 20,000 units increases the costs by 660,000 - 440,000 = 220,000 Therefore the variable cost per unit is 220,000/10,000 = 22 and the fixed cost per unit is 660,000 - 22 x 20,000 = 220,000. At 2013 costs the planned 2014 output of 25,000 would cost 220,000 + 25,000 x 22 = 770,000. That has to be inflated by 8%, so $831,600 (as calculated by Jarboshi).

Thanks everyone!! ????