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From the flexible budgets given in the question, we can tell that the material costs are variable because they are $4 per unit at each of the three levels.
Similarly the labour costs are variable because they are $5.50 per unit at each of the three levels.
It is also obvious that the total fixed costs really are fixed and will be $750,000 in total at all levels.
If they operate at 80% capacity then they will be producing 80% x 262,500 = 210,000 units.
Finally, they need one supervisor for every extra 50,000 units. For 200,000 units they would need 4 supervisors and therefore for the production of 210,000 they will need 5 supervisors (they obviously cannot emply a fraction of a supervisor 🙂 ). Therefore there will be an extra cost of 5 x $35,000 = $175,000.
Since the know the variable costs per unit, and the total fixed costs, we can now calculate the total budgeted cost.
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