Colorado Springs Ltd. produces and sells bottled water. The company's controller has the following information available from the static budget of one of the product lines for the month of April: Actual production during April was 18,000 units and actual direct materials cost was $6,300.
If the company prepares a flexible budget for April, the projected direct materials cost would be:
A) $7,000
B) $6,300
C) $5,400
D) $6,000

Question

Colorado Springs Ltd. produces and sells bottled water. The company's controller has the following information available from the static budget of one of the product lines for the month of April:  Actual production during April was 18,000 units and actual direct materials cost was $6,300.
If the company prepares a flexible budget for April, the projected direct materials cost would be:
A) $7,000 
B) $6,300 
C) $5,400 
D) $6,000

Quizplus · Accepted Answer

To calculate the flexible budget, we need to use the actual level of activity (18,000 units) and the budgeted cost per unit for direct materials. We can calculate the budgeted cost per unit by dividing the total budgeted cost for direct materials by the budgeted production level (20,000 units):

Budgeted cost per unit = Budgeted direct materials cost / Budgeted production level
Budgeted cost per unit = $6,000 / 20,000 units
Budgeted cost per unit = $0.30 per unit

Now, we can use this budgeted cost per unit to calculate the flexible budget for actual production of 18,000 units:

Flexible budget for direct materials = Actual production * Budgeted cost per unit
Flexible budget for direct materials = 18,000 units * $0.30 per unit
Flexible budget for direct materials = $5,400

Therefore, the projected direct materials cost for the flexible budget would be $5,400 (Choice C).