Question

Flagstags Brewery’s flexible budget estimates are $74,000, $77,000, and $80,000 to manufacture 4,000, 4,500, and 5,000 gallons of beer, respectively, next quarter. What are the variable and fixed manufacturing costs in the flexible budget for Flagstags?

Answer 1

Answer:

Fixed cost = $50,000 and variable cost is $24,000

Explanation:

As we know that

Total cost = Variable cost + fixed cost

where,

Variable cost = Number of gallons of beer × variable cost per gallon

The variable cost per gallon is

= ($77,000 - $74,000) ÷ (4,500 - 4,000)

= ($3,000) ÷ (500)

= $6

So, the variable cost is

= 4,000 units × $6

= $24,000

And, the total cost is $74,000

So, the fixed cost is

= $74,000 - $24,000

= $50,000