Miller and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of $24,000. A flexible budget for 12,000 units of production would show
A)the same cost structure in total
B)direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $29,000
C)total variable costs of $148,000
D)direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $24,000

Question

Quizplus · Accepted Answer

A flexible budget adjusts costs based on changes in the level of output. Direct materials, direct labor, and utilities are variable costs that will increase as production increases. Supervisor salaries are a fixed cost and will not change with the level of production. For 12,000 units, direct materials and direct labor costs increase proportionally (12,000/10,000 = 1.2), so $50,000 * 1.2 = $60,000 for materials, and $44,000 * 1.2 = $52,800 for labor. Utilities, being variable, also increase proportionally, so $5,000 * 1.2 = $6,000. Supervisor salaries remain unchanged at $24,000 because they are fixed costs.

Miller and Sons' Static Budget for 10,000 Units of Production