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CMA Intermediate · Cost Accounting · Budget and Budgetary Control

Sharma Components Ltd's flexible budget at 8,000 units shows total cost of Rs 6,40,000, of which fixed cost is Rs 2,40,000. Variable cost per unit stays constant. What is the budgeted total cost at 10,000 units?

Budgeted total cost at 10,000 units is Rs 7,40,000. Variable cost is Rs 4,00,000 for 8,000 units, or Rs 50 per unit, giving Rs 5,00,000 at 10,000 units. Adding the unchanged fixed cost of Rs 2,40,000 gives the total.

  1. ARs 8,00,000
  2. BRs 7,40,000Correct
  3. CRs 5,00,000
  4. DRs 6,50,000

Explanation

Variable cost at 8,000 units = 6,40,000 - 2,40,000 = Rs 4,00,000, so Rs 50 per unit. At 10,000 units, variable cost = Rs 5,00,000. Adding fixed cost of Rs 2,40,000 gives Rs 7,40,000. Rs 8,00,000 wrongly treats the whole cost as variable (80 x 10,000).

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