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

A flexible budget of Rao Components Ltd. shows total cost of ₹5,60,000 at 8,000 units and ₹6,40,000 at 10,000 units. What would be the budgeted total cost at 9,000 units if the cost behaviour remains linear?

The budgeted cost at 9,000 units is ₹6,00,000. The high-low method gives variable cost of ₹40 per unit and fixed cost of ₹2,40,000, so cost at 9,000 units is 2,40,000 + 9,000 x 40 = ₹6,00,000.

  1. A₹6,20,000
  2. B₹6,00,000Correct
  3. C₹5,80,000
  4. D₹6,10,000

Explanation

Variable cost per unit = (6,40,000 - 5,60,000)/2,000 = ₹40. Fixed cost = 5,60,000 - 8,000 x 40 = ₹2,40,000. At 9,000 units: 2,40,000 + 3,60,000 = ₹6,00,000, which is also the midpoint of the two given costs.

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