QT Co manufactures a single product and an extract from their flexed budget for production costs is as follows;
(this is supposed to be in a table but I cant copy and paste it)
80%:
Direct Material - 2400
Labour - 2120
Production OH - 4060
Total 8580
90%:
Direct Material - 2700
Labour - 2160
Production OH - 4080
Total - 8940
What would the total production cost allownace be in a budget flexed at the 83% level of activity?
I think what I need to do is work out the cost behaviour i.e. fixed / variable/ semi variable. From the data I think that direct material is fixed @ $30 but I am not sure how to work out Labour & Production OH to complete the question.
Please help!
Thanks
Vicki
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Q: Flexed Budget Activity Level
11y ago#1You are correct in saying that the material cost is a variable cost of $30 per %.
With regard to labour, the variable cost per % is (2160 - 2120) / (90 - 80) = $4.
Therefore the fixed variable cost is 2120 - (80 x 4) = $1800
You need similar workings for production overheads.
(The free lectures on high/low may be useful for you).
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