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

Question

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

Quizplus · Accepted Answer

A flexible budget adjusts for changes in activity levels, so we need to use the per unit costs from the static budget to calculate costs for 8,200 units. 
Variable costs per unit = $0.70 + $0.30 = $1.00 
Fixed costs = $5,000 
Total flexible budget costs = ($1.00 x 8,200) + $5,000 = $8,200

Jones Company Developed the Following Static Budget at the Beginning