Jerome Copper Company budgeted 126,000 process hours for the month of October when one of the company's cost functions was budgeted to be $2,976,000.The process hours actually worked during October were 135,000. Jerome Copper Company experienced a cost variance of $40,000 unfavorable related to this cost function.If the company's cost function includes a $16 per process hour rate, what is the formula used by Jerome Copper Company to derive its ﬂexible budget?

Question

Quizplus · Accepted Answer

The flexible budget formula is derived by adjusting the fixed cost to account for the variance. The total cost for 126,000 hours is $2,976,000. The variable cost is $16 per hour, so the variable cost for 126,000 hours is $2,016,000. The fixed cost is $2,976,000 - $2,016,000 = $960,000. Thus, the formula is Y = $16(Total process hours) + $960,000.

Jerome Copper Company Budgeted 126,000 Process Hours for the Month