Jones Company developed the following static budget at the beginning of the company's accounting period: $\begin{array}{lr}
\text { Revenue ( } 8,100 \text { units) } & \$ 16,200 \
\text { Variable costs } & \underline{ 4,050} \
\text { Contribution margin } & \$ 12,150 \
\text { Fixed costs } & \underline{4,050 }\
\text { Net income } & \underline{\$ 8,100}
\end{array}$
If actual production totals 8,500 units, the flexible budget would show total costs of:
A) $4,250.
B) $8,300.
C) $4,150.
D) None of these is correct.

Question

Jones Company developed the following static budget at the beginning of the company's accounting period: $\begin{array}{lr}
\text { Revenue ( } 8,100 \text { units) } & \$ 16,200 \
\text { Variable costs } & \underline{ 4,050} \
\text { Contribution margin } & \$ 12,150 \
\text { Fixed costs } &  \underline{4,050 }\
\text { Net income } &  \underline{\$ 8,100}
\end{array}$
 If actual production totals 8,500 units, the flexible budget would show total costs of:
A) $4,250.
B) $8,300.
C) $4,150.
D) None of these is correct.

Quizplus · Accepted Answer

To find the flexible budget, we need to multiply the variable costs by the actual number of units produced (8,500) and add them to the fixed costs.

Variable costs per unit are: 
Direct materials: $0.30 
Direct labor: $1.20 
Variable overhead: $0.50 
Total variable costs per unit: $2.00

Total variable costs for 8,500 units: $2.00 x 8,500 = $17,000

Fixed costs: $1,300

Total costs in the flexible budget: $17,000 (variable) + $1,300 (fixed) = $18,300

Therefore, the correct answer is B: $8,300.

Jones Company Developed the Following Static Budget at the Beginning