ATR Corporation's budgeted product costs for the third quarter of 20x2 were based on an expected volume of 1,500 units. The budgeted unit costs appear below: Direct material $ 1.50
Direct labour 2.25
Variable overhead 4.25
Fixed overhead 3.00
Total $11.00
If ATR's actual volume for the third quarter of 20x2 was 15% above its expected volume:
I. Actual total costs will be 15% greater than budgeted total costs
II. Actual cost per unit will be 15% greater than budgeted cost per unit
A)I
B)II
C)I and II
D)None of the above (neither I nor II)

Question

Quizplus · Accepted Answer

Actual total costs will increase due to higher volume, but not by a simple 15% because fixed costs remain constant. Actual cost per unit will decrease due to the fixed cost being spread over more units.

ATR Corporation's Budgeted Product Costs for the Third Quarter of 20x2