Question

Exercise 9-1 Prepare a Flexible Budget [LO9-1]

Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:

  

Puget Sound Divers Planning Budget For the Month Ended May 31
Budgeted diving-hours (q)		300
Revenue ($460.00q)	$	138,000
Expenses:
Wages and salaries ($11,000 + $122.00q)		47,600
Supplies ($4.00q)		1,200
Equipment rental ($2,000 + $25.00q)		9,500
Insurance ($4,000)		4,000
Miscellaneous ($510 + $1.50q)		960
Total expense		63,260
Net operating income	$	74,740

  

Required:

During May, the company’s activity was actually 290 diving-hours. Complete the following flexible budget for that level of activity.

Answer 1

Answer:
Prepare flexible budget for the actual diving hour of 290

P S Divers
Flexible Budget
For the month Ended May 31
Particulars	Amount	Amount
Revenue		$133,400
Less: Expenses
Wages and Salaries	$46,380
Supplies	$1,160
Equipment rental	$9,250
Insurance	$4,000
Miscellaneous	$945
Total Expense		$61,735
Net Operating Income		$71,655

Working:

Revenue = Revenue per diving hour * actual diving hours
= $460*290
= $133,400

Wages and Salaries expense = Fixed expense + variable expense
=$11,000 (Variable expense * Actual diving hour)
= $11,000 + ($122.00 *290)
= $46,380

Supplies expense = [(Supplies expense per diving hour )*Actual diving Hour]
=$4*290
=$1,160

Equipment rental expense = fixed expense + variable expense
=$2,000 + [(variable expense for per equipment rental expense) * Actual diving hour]
=$2,000 + ($25.00 *290 )
=$9,250

Miscellaneous expense = Fixed expense + variable expense
=$510 + [(Variable expense for per miscellaneous expenses)*Actual diving hour]
=$510 +($1.50 * 290)
=$945