Lartey Corporation's cost formula for its selling and administrative expense is $22,200 per month plus $27 per unit. For the month of December, the company planned for activity of 5,300 units, but the actual level of activity was 5,270 units. The actual selling and administrative expense for the month was $168,150.
-The selling and administrative expense in the flexible budget for December would be closest to:
A)$164,364
B)$164,490
C)$165,300
D)$168,150

Question

Quizplus · Accepted Answer

To solve this problem, we need to start with the flexible budget formula which is:

Flexible budget = Fixed costs + Variable costs (actual level of activity)

In the question, it is given that the actual level of activity in December is 7,150 machine-hours. Using this information, we can calculate the variable costs and fixed costs for the month of December as follows:

Variable costs = $7.50 * 7,150 = $53,625
Fixed costs = $110,865

So, the flexible budget for December would be:

Flexible budget = $110,865 + $53,625 = $164,490

Therefore, the closest choice is option B, $164,490.

Lartey Corporation's Cost Formula for Its Selling and Administrative Expense