Prowse Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. A total of 42 wells were actually serviced during October.The "Other expenses" in the flexible budget for October would have been closest to:
A) $34,093
B) $38,200
C) $43,930
D) $38,700

Question

Prowse Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.  A total of 42 wells were actually serviced during October.The "Other expenses" in the flexible budget for October would have been closest to:
A) $34,093 
B) $38,200 
C) $43,930 
D) $38,700

Quizplus · Accepted Answer

Total flexible budget for servicing 42 wells: 
Fixed Costs: $52,600 
Variable Costs: ($1,870 × 42) = $78,540 
Flexible budget: $52,600 + $78,540 = $131,140

Flexible budget for other expenses: 35% of $131,140 = $45,899

However, the actual other expenses incurred were $7,699, which means that the actual other expenses were $38,200 less than the flexible budget for other expenses. Therefore, the closest estimate for the "Other expenses" in the flexible budget for October would be B) $38,200.

Prowse Corporation Is an Oil Well Service Company That Measures