Abrasive Brothers, Inc., manufactures brake pads for automobiles. For April 2017, the company's static budget projected 5,000 units would be produced and sold at a variable cost of $6 per unit and total fixed costs of $12,000. The budgeted selling price was $18 per unit. Actual results for April were somewhat disappointing in that the company produced and sold only 4,200 units at an actual price of $17.50 per unit.
-What would be the amount of cost of goods sold that would be included in a flexible budget for April 2017?
A) $30,000
B) $42,000
C) $25,200
D) $37,200

Question

Abrasive Brothers, Inc., manufactures brake pads for automobiles. For April 2017, the company's static budget projected 5,000 units would be produced and sold at a variable cost of $6 per unit and total fixed costs of $12,000. The budgeted selling price was $18 per unit. Actual results for April were somewhat disappointing in that the company produced and sold only 4,200 units at an actual price of $17.50 per unit. 
-What would be the amount of cost of goods sold that would be included in a flexible budget for April 2017?
A) $30,000
B) $42,000
C) $25,200
D) $37,200

Quizplus · Accepted Answer

The flexible budget adjusts for the actual level of activity, which is 4,200 units. The cost of goods sold in the flexible budget would include variable costs and fixed costs. Variable costs are $6 per unit, so for 4,200 units, it would be 4,200 * $6 = $25,200. Fixed costs remain at $12,000. Therefore, the total cost of goods sold in the flexible budget is $25,200 + $12,000 = $37,200.