Skip to content

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

Sharma Textiles budgets production of 10,000 units at a total cost of Rs 6,00,000, of which Rs 2,00,000 is fixed and the rest is variable. Fixed cost stays constant in the relevant range. What is the flexible budget total cost for 12,000 units?

The flexible budget cost is Rs 6,80,000. Variable cost is Rs 40 per unit, so 12,000 units cost Rs 4,80,000, and the fixed cost of Rs 2,00,000 is added unchanged. Scaling total cost proportionally would wrongly treat fixed cost as variable.

  1. ARs 7,20,000
  2. BRs 6,80,000Correct
  3. CRs 7,00,000
  4. DRs 6,40,000

Explanation

Variable cost = 6,00,000 - 2,00,000 = 4,00,000, i.e. Rs 40 per unit. For 12,000 units variable cost = 4,80,000. Add fixed 2,00,000 to get Rs 6,80,000. Rs 7,20,000 wrongly scales the whole cost, treating fixed cost as variable.

Did you get it right without looking?

One question tells you little. A timed set on Budgets and Budgetary Control shows your real accuracy, how long you take and where you lose marks.

Practise Budgets and Budgetary ControlFree diagnostic mock

More Budgets and Budgetary Control questions