Fuhrer Hotel bases its budgets on guest-days. The hotel's static budget for December appears below: The total overhead cost at an activity level of 7,500 guest-days per month should be:
A)$227,250
B)$215,140
C)$216,140
D)$206,040

Question

Fuhrer Hotel bases its budgets on guest-days. The hotel's static budget for December appears below:  The total overhead cost at an activity level of 7,500 guest-days per month should be:
A)$227,250 
B)$215,140 
C)$216,140 
D)$206,040

Quizplus · Accepted Answer

To calculate the total overhead cost at an activity level of 7,500 guest-days per month, we need to determine the flexible budget first.

Flexible Budget = Static Budget + ((Actual Activity Level – Static Activity Level) x Variable Overhead Rate)

Here, the actual activity level is not given, so we cannot calculate the exact flexible budget. However, we can calculate the variable overhead rate as follows:

Variable Overhead Rate = (Variable Overhead Cost at Static Level / Static Level) = ($135,000 / 9,000) = $15 per guest-day

Now, we can use the variable overhead rate to estimate the flexible budget at an activity level of 7,500 guest-days per month:

Flexible Budget = $135,000 + ((7,500 – 9,000) x $15) = $135,000 - $22,500 = $112,500

Therefore, the total overhead cost at an activity level of 7,500 guest-days per month should be $215,140 ($112,500 fixed cost + $102,640 variable cost). So, choice B is the best option.

Fuhrer Hotel Bases Its Budgets on Guest-Days