Harold Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During March, the company budgeted for 7,900 units, but its actual level of activity was 7,860 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for March:Data used in budgeting: Actual results for March:
The selling and administrative expenses in the planning budget for March would be closest to:
A) $31,330
B) $31,350
C) $31,950
D) $32,113

Question

Harold Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During March, the company budgeted for 7,900 units, but its actual level of activity was 7,860 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for March:Data used in budgeting:  Actual results for March:
 The selling and administrative expenses in the planning budget for March would be closest to:
A) $31,330 
B) $31,350 
C) $31,950 
D) $32,113

Quizplus · Accepted Answer

Using the formula:

Total Selling and Administrative Expenses = $7 per unit + $13,000 + $2 per unit

Budgeted selling and administrative expenses = 7,900 units × ($7 per unit + $2 per unit) + $13,000 = $60,600

Actual selling and administrative expenses = $55,250

The difference between the actual and budgeted selling and administrative expenses is:

$55,250 − $60,600 = −$5,350 (favorable)

This means that actual selling and administrative expenses were less than budgeted selling and administrative expenses, which is favorable for the company.

To find the selling and administrative expenses in the planning budget for March, we need to add the fixed portion of the expenses to the variable portion based on the actual level of activity.

Fixed Selling and Administrative Expenses = $13,000
Variable Selling and Administrative Expenses per unit = $7 + $2 = $9

Total Selling and Administrative Expenses = Fixed Selling and Administrative Expenses + (Variable Selling and Administrative Expenses per unit × Actual level of activity)

Total Selling and Administrative Expenses = $13,000 + ($9 × 7,860 units) = $31,350

Therefore, the closest answer choice is B.

Harold Corporation Manufactures and Sells a Single Product