McCabe Manufacturing Cos static budget at 7651 units of prod

McCabe Manufacturing Co.\'s static budget at 7,651 units of production includes $40,163 for direct labor and $3,754 for electric power. Total fixed costs are $44,317. What would flexible budget show at 10,877 units of production?

Solution

Correct solution is (b) variable costs of $62,434 and $44,317 of fixed costs.

This is because the fixed costs do not change with units of production, and therefore remain the same at $44,317. The direct labor and electric power will increase linearly with the units of production. A linear relation shows that the net variable cost at 10877 units is $62,434 ($57,097 direct labor + $5,336 electric power).