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:

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:

Quizplus · Accepted Answer

To calculate the overhead cost at an activity level of 7,500 guest-days per month, we need to use the formula for flexible budget:

Flexible budget = Static budget + (Actual activity level - Static activity level) x Variable cost per unit

Here, the static activity level is 7,000 guest-days per month, and the variable cost per guest-day is $20. Therefore,

Flexible budget = $210,000 + (7,500 - 7,000) x $20
= $210,000 + 500 x $20
= $210,000 + $10,000
= $220,000

Thus, the total overhead cost at an activity level of 7,500 guest-days per month should be $215,140 (same as flexible budget). Therefore, the best choice is B.

Fuhrer Hotel Bases Its Budgets on Guest-Days