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

Tara Foods Ltd prepares a flexible budget. At 8,000 units of activity, total budgeted cost is Rs 5,60,000, and at 10,000 units it is Rs 6,40,000. What is the budgeted total cost at 11,500 units?

The budgeted cost at 11,500 units is Rs 7,00,000. The change in cost of Rs 80,000 over 2,000 units gives variable cost of Rs 40 per unit, leaving fixed cost of Rs 2,40,000. Adding 11,500 times Rs 40 to the fixed cost gives the total.

  1. ARs 7,00,000Correct
  2. BRs 6,90,000
  3. CRs 7,20,000
  4. DRs 6,80,000

Explanation

Variable cost per unit = (6,40,000 - 5,60,000) / (10,000 - 8,000) = Rs 40. Fixed cost = 6,40,000 - 10,000 x 40 = Rs 2,40,000. At 11,500 units cost = 2,40,000 + 11,500 x 40 = 2,40,000 + 4,60,000 = Rs 7,00,000. Check using the 8,000 point: 2,40,000 + 3,20,000 = 5,60,000, which matches.

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