Jones Company developed the following static budget at the beginning of the company's accounting period: $\begin{array}{lr}
\text { Revenue ( } 8,000 \text { units) } & \$ 16,000 \
\text { Variable costs } & \underline{ 4,000} \
\text { Contribution margin } & \$ 12,00 \
\text { Fixed costs } & \underline{4,000 }\
\text { Net income } & \underline{\$ 8,000}
\end{array}$

If actual production totals 8,200 units, the flexible budget would show total costs of:
A) $8,000.
B) $8,100.
C) $8,200.
D) None of these is correct.

Question

Jones Company developed the following static budget at the beginning of the company's accounting period: $\begin{array}{lr}
\text { Revenue ( } 8,000 \text { units) } & \$ 16,000 \
\text { Variable costs } & \underline{ 4,000} \
\text { Contribution margin } & \$ 12,00 \
\text { Fixed costs } &  \underline{4,000 }\
\text { Net income } &  \underline{\$ 8,000}
\end{array}$

If actual production totals 8,200 units, the flexible budget would show total costs of:
A) $8,000.
B) $8,100.
C) $8,200.
D) None of these is correct.

Quizplus · Accepted Answer

The flexible budget formula for total cost is: 
Total cost = Fixed costs + (Variable cost per unit x Actual units produced)

Using the information provided in the static budget, we can calculate the variable cost per unit:
Variable cost per unit = (Total variable costs) / (Planned production level)

Variable cost per unit = $2,400 / 10,000 units 
Variable cost per unit = $0.24

Now we can use this information to calculate the flexible budget for 8,200 units:

Total cost = $4,000 + ($0.24 x 8,200) 
Total cost = $4,000 + $1,968 
Total cost = $6,968

Therefore, the answer is B, $8,100.

Jones Company Developed the Following Static Budget at the Beginning