ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
A company's budget for a period was 5,000 units of output at a total cost of $60,000, of which $20,000 is fixed. Actual output was 5,500 units. What is the flexed budget cost allowance for the actual output?
The flexed budget cost is $64,000. Fixed costs stay at $20,000 while variable costs of $8 per unit are applied to 5,500 units, giving $44,000. Scaling the whole $60,000 up would wrongly flex the fixed cost as well.
- A$60,000
- B$66,000
- C$64,000Correct
- D$68,000
Explanation
Variable cost per unit = ($60,000 - $20,000) / 5,000 = $8. Flexed cost = $20,000 + (5,500 x $8) = $20,000 + $44,000 = $64,000. Scaling the total cost ($66,000) wrongly treats fixed cost as variable.
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