Question

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 ($11,800 + $128.00q)		50,200
Supplies ($6.00q)		1,800
Equipment rental ($2,500 + $21.00q)		8,800
Insurance ($3,900)		3,900
Miscellaneous ($530 + $1.44q)		962
Total expense		65,662
Net operating income	$	72,338
Required: During May, the company’s activity was actually 290 diving-hours. Complete the following flexible budget for that level of activity. (Round your answers to nearest whole dollar.) Puget Sound Divers Flexible Budget For the Month Ended May 31 Revenue Expenses: Wages and salaries Supplies Equipment rental Insurance Miscellaneous Total expense Net operating income

Answer 1

Solution:

Flexible Budget is a budget prepared by taking the actual activity level achieved but at standard cost/price. It is useful to compare the budget with actual level.

q is taken as actual level of activity i.e. 290 diving hours and all the below calculation is based on standard price given in the question.

Puget Sound Drivers
Flexible Budget
For the Month Ended May 31
	Flexible Budget
Revenue ($460*290)	$133,400
Expenses:
Wages and salaries ($11,800 + 128*290)	$48,920
Supplies (6*290)	$1,740
Equipment Rental ($2,500 + $21*290)	$8,590
Insurance ($3,900)	$3,900
Miscellaneous ($530 + 1.44*290)	$948
Total Expense	$64,098
Net Operating Income	$69,302

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