ACCA Applied Knowledge · Management Accounting · Flexible budgets
A department's budget at 5,000 machine hours is $48,000 and at 8,000 machine hours is $60,000. Assuming a linear semi-variable cost behaviour, what is the budget cost allowance for 6,500 machine hours?
The allowance is $54,000. The high-low method gives a variable rate of $4 per hour and fixed costs of $28,000, so 6,500 hours cost 28,000 plus 26,000. Treating the whole cost as variable would overstate the allowance.
- A$54,000Correct
- B$62,400
- C$52,000
- D$56,000
Explanation
Variable rate = (60,000-48,000)/(8,000-5,000) = $4 per hour. Fixed cost = 48,000 - 5,000x4 = $28,000. At 6,500 hours: 28,000 + 26,000 = $54,000. Using $48,000/5,000 = $9.60 per hour for all hours would wrongly give $62,400.
Did you get it right without looking?
One question tells you little. A timed set on Flexible budgets shows your real accuracy, how long you take and where you lose marks.
More Flexible budgets questions
- Which statement about preparing a flexible budget is correct?
- Budgeted sales were 5,000 units at $20 each with variable cost $12 per unit and fixed costs $18,000. Actual sales were 5,600 units at $19 ea…
- A department's budget was 2,000 labour hours costing $24,000, with 40% of the cost fixed. Actual hours were 2,500 and actual cost was $28,10…
- A company budgets for 4,000 units: variable production cost $10 per unit, a step-fixed supervision cost of $9,000 per 5,000 units of output …
- Which statement about reporting variances using a flexed budget is correct?
- A company budgeted 8,000 units with a semi-variable cost of $46,000. At 12,000 units the semi-variable cost is expected to be $62,000. What …