Lifter Company uses forklifts to move materials from the store area to the production floor. The company has four forklifts, which are fully used 16 hours per day (making five moves per hour). The company works 300 days per year, running two 8-hour shifts per day. The forklift operators work 2,000 hours per year and are paid an annual salary of $45,000.
According to a recent study, each forklift uses 0.25 litres of fuel per move. The cost of fuel is $2.00 per litre.
-Refer to the Figure.Which of the following is a flexible budget formula for the moving materials activity?
A)$180,000 + $0.50 × moves
B)$405,000 + $0.50 × moves
C)$450,000 + $0.50 × moves
D)$450,000 + $2.00 × moves

Question

Quizplus · Accepted Answer

The flexible budget formula for the moving materials activity should include both fixed and variable costs. The fixed cost is the annual salary of the forklift operators, which is $45,000 x 4 = $180,000. The variable cost is the fuel cost, which is $2.00 x 0.25 litres per move = $0.50 per move. Therefore, the flexible budget formula is: 
$450,000 + $0.50 × moves.

Lifter Company Uses Forklifts to Move Materials from the Store