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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

A firm's flexible budget at 60% capacity shows total cost Rs 4,60,000 and at 80% capacity Rs 5,40,000. What is the budgeted total cost at 90% capacity?

Budgeted cost at 90% capacity is Rs 5,80,000. The change of Rs 80,000 over 20% gives variable cost of Rs 4,000 per 1%, fixed cost is Rs 2,20,000, so 90% gives 2,20,000 plus 3,60,000.

  1. ARs 5,80,000Correct
  2. BRs 6,00,000
  3. CRs 5,95,000
  4. DRs 6,07,500

Explanation

Variable cost per 1% = (5,40,000-4,60,000)/20 = Rs 4,000. Fixed = 4,60,000 - 60x4,000 = Rs 2,20,000. At 90%: 2,20,000 + 90x4,000 = Rs 5,80,000. Rs 6,07,500 wrongly scales the 80% cost proportionally (5,40,000 x 90/80).

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