Pizza Company planned to produce 12,000 units.This level of activity required 40 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the static budget amount for total setup costs?
A)$21,000
B)$25,500
C)$26,000
D)$38,000

Question

Quizplus · Accepted Answer

The static budget is calculated based on the planned level of activity, which is 12,000 units in this case.

Static budget amount for setup costs = $18,000 + 40 setups × $500 per setup 
= $18,000 + $20,000 = $38,000

The actual setup cost was $26,000, which means the company overspent on setups. The best choice is option D, which reflects the static budget amount, as it shows the amount the company had planned to spend on setups if the production level had reached 12,000 units.

Pizza Company Planned to Produce 12,000 Units