3 CAAMp Inc has an operating environment with considerable u

3. CAAMp, Inc. has an operating environment with considerable uncertainty. The company prepares the budget for several different volume levels. Inventories are negligible. Data has been collected below: (15 points) Budgeted variable costs per unit Direct materials Direct labor Supplies Indirect labor Power $8.00 20.00 3.00 0.90 0.10 Budgeted fixed overhead Supervision $10,000 Depreciation 4,000 Rent 3,000 If 10,000 units will be produced, answer the following questions (include required calculations): a. What are the budgeted costs for materials? (3 pts) b. What are the budgeted costs for rent? (3 pts) c. What are the total budgeted costs? (3 pts) d. What is the difference in total budgeted costs between the volume range of 10,000 and 11,000 units? If this difference a favorable or unfavorable variance? Does it affect efficiency or effectiveness? (6 pts)

Solution

a) Budgeted cost for materials is = direct material cost per unit * Units produced

That is = 8*10000 = $ 80,000 /-

b) Budgeted cost of rent is = Fixed cost given

That is = $ 3,000 /-

c) Total budgeted cost is =( total variable cost * 10000) + Budgeted fixed overhead

That is = (32*10000)+17000 = $ 337,000/-

d) Difference will be = Difference in units * Total variable cost per unit

That is = 1000*32 = $ 32,000/- Favourable

It enables for efficiency