Sanchez Company planned to produce 12,000 units.This level of activity required 20 setups at a cost of $22,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.At 10,000 units,what is the flexible budget amount for total setup costs?
A) $7,500
B) $22,000
C) $26,000
D) $29,500

Question

Quizplus · Accepted Answer

The flexible budget amount for total setup costs can be calculated using the following formula:
Flexible Budget = Budgeted cost at planned activity level + (Cost per unit of activity × Actual level of activity) - (Budgeted cost at planned activity level)

Budgeted cost at planned activity level = 20 setups × $500 per setup + $22,000 = $32,000
Cost per unit of activity = $500 per setup
Actual level of activity = 15 setups
Budgeted cost at planned activity level = 20 setups × $500 per setup + $22,000 = $32,000

Flexible Budget = $32,000 + ($500 × 15) - $32,000 
Flexible Budget = $7,500

Therefore, the best choice is D as it is the correct calculation of the flexible budget amount.

Sanchez Company Planned to Produce 12,000 Units