Question

Flexible Budget for Varying Levels of Activity Nashler Company has the following budgeted variable costs per unit produced: Direct materials $7.10 Direct labor 1.54 Variable overhead: Supplies 0.23 Maintenance 0.19 Power 0.17 Budgeted fixed overhead costs per month include supervision of $98,000, depreciation of $77,000, and other overhead of $248,000. Required: 1. Prepare a flexible budget for all costs of production for the following levels of production: 160,000 units, 170,000 units, and 175,000 units. Round your answers to the nearest cent, if required.

What is the per-unit total product cost for each of the production levels from Requirement 1? (Round each unit cost to the nearest cent.)

What if Nashler Company’s cost of maintenance rose to $0.22 per unit? How would that affect the unit product costs calculated in Requirement 2? If required, round your answer to the nearest cent.

Answer 1

Answer:

1.
Flexible budget is budget which changes with volume of activity
Nashler company
Flexible Budget
	Variable cost per unit	Range of production in Units 160,000	Range of production in Units 170,000	Range of production in Units 175,000
Production costs:
Variable:
Direct materials	$7.10	$1,136,000	$1,207,000	$1,242,500
Direct labor	$1.54	$246,400	$261,800	$269,500
Variable overhead:
Supplies	$0.23	$36,800	$39,100	$40,250
Maintenance	$0.19	$30,400	$32,300	$33,250
Power	$0.17	$27,200	$28,900	$29,750
Total variable costs	$9.23	$1,476,800	$1,569,100	$1,615,250
Fixed overhead:
Supervision		$98,000	$98,000	$98,000
Depreciation		$77,000	$77,000	$77,000
Other overhead		$248,000	$248,000	$248,000
Total fixed costs		$423,000	$423,000	$423,000
Total production costs		$1,899,800	$1,992,100	$2,038,250
The fixed costs under flexible budget would remain same as budgeted and only variable costs would vary with range of production levels.
2.
Calculation of per unit total product costs for each of the production levels
Production costs	$1,899,800	$1,992,100	$2,038,250
Range of production	160000	170000	175000
Cost per unit	$11.87	$11.72	$11.65
3.
Maintenance costs is variable costs which varies with units produced and so increase in maintenance costs to 0.22 per unit would increase the unit product costs by 0.03 per unit (0.22-0.19)