Question

Jase manufacturing co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. total fixed costs are $24,000. at 12,000 units of production, a flexible budget would show

Answer 1

A flexible budget would show $48,000 (12,000/10,000 x 40,000) for the direct labor cost, $4,800 (12,000/10,000 x 4,000) for the electric power cost, and $24,000 of total fixed cost at 12,000 units of production. The static budget is a budget which does not change parallelly with the changes production unit. The flexible budget is a budget which changes parallelly with the changes production unit. The fixed cost does not change in the flexible budget because of its cost behavior.