Illescas Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 6,400 units, but its actual level of activity was 6,440 units. The company has provided the following data concerning the formulas to be used in its budgeting: The selling and administrative expenses in the planning budget for December would be closest to:
A)$32,396
B)$33,608
C)$33,580
D)$32,598

Question

Illescas Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 6,400 units, but its actual level of activity was 6,440 units. The company has provided the following data concerning the formulas to be used in its budgeting:  The selling and administrative expenses in the planning budget for December would be closest to:
A)$32,396 
B)$33,608 
C)$33,580 
D)$32,598

Quizplus · Accepted Answer

The selling and administrative expenses in the planning budget for December can be calculated using the formula:
Planned Selling and Administrative Expenses = Fixed Selling and Administrative Expenses + (Variable Selling and Administrative Expenses per unit × Number of units)

Plugging in the numbers from the table in the formula, we get:
Planned Selling and Administrative Expenses = $21,800 + ($3.25 × 6,400) = $32,200

However, since the actual level of activity was 6,440 units, we need to adjust for the difference using the flexible budget formula:

Flexible Budget = Fixed Costs + (Variable Cost per unit × Actual Activity)

Plugging in the numbers from the table, we get:
Flexible Selling and Administrative Expenses = $21,800 + ($3.25 × 6,440) = $32,580

Therefore, the closest answer is C) $33,580.

Illescas Corporation Manufactures and Sells a Single Product