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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Kapoor Ltd budgets production of 10,000 units at a variable cost of Rs 40 per unit and fixed cost of Rs 2,00,000. The flexible budget is prepared for 12,000 units of activity. What is the budgeted total cost at 12,000 units?

The budgeted total cost at 12,000 units is Rs 6,80,000. Variable cost rises with activity to Rs 4,80,000 (12,000 x Rs 40), while fixed cost remains Rs 2,00,000 within the relevant range, giving the flexible budget total.

  1. ARs 6,80,000Correct
  2. BRs 5,60,000
  3. CRs 6,00,000
  4. DRs 7,20,000

Explanation

Variable cost at 12,000 units = 12,000 x 40 = Rs 4,80,000. Fixed cost stays at Rs 2,00,000 within the relevant range. Total = Rs 6,80,000. Rs 7,20,000 wrongly treats fixed cost as varying (2,40,000 + 4,80,000).

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