Asked by Emilee Wagner on Jul 11, 2024
Verified
Benjamin Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. When the company prepared its planning budget at the beginning of March, it assumed that 26 containers would have been refurbished. However, 23 containers were actually refurbished during March.The amount shown for "Employee salaries and wages" in the planning budget for March would have been closest to:
A) $84,300
B) $89,757
C) $79,400
D) $81,300
Employee Salaries And Wages
Compensation paid to employees for their labor or services, typically expressed as a periodic payment such as hourly, weekly, or monthly.
Containers Refurbished
Used or old containers that have been restored or repaired to a usable condition.
- Absorb the fundamentals of flexible budgeting and its capability to adjust to different rates of activity.
- Discern the impact of fixed and variable costs on budget development and regulation.
Verified Answer
WH
william hansenJul 17, 2024
Final Answer :
A
Explanation :
Using the planning budget numbers, the fixed cost component is $58,500 ($31,500 + $27,000).
The variable cost component is $2,800 ($100 x 28) per container, which gives us a total variable cost of $72,800 ($2,800 x 26) for 26 containers as per the planning budget.
Thus, the total cost in the planning budget is $131,300 ($58,500 + $72,800).
To calculate the actual "Employee salaries and wages" cost, we need to use the actual number of containers refurbished (23) instead of the planned number (26).
Variable cost for 23 containers = $2,300 ($100 x 23)
Fixed cost remains the same at $58,500
Total cost for 23 containers = $60,800 ($58,500 + $2,300)
Subtracting total cost for 23 containers from the total cost for 26 containers in the planning budget gives us the flexible budget variance:
Flexible budget variance = Planning budget - Flexible budget
= ($131,300 - $60,800)
= $70,500
This variance can be split into its component parts:
1. Variable cost variance = (Actual quantity x Standard price) - (Actual quantity x Actual price)
= (23 x $100) - (23 x $100)
= $0
2. Fixed cost variance = Planning Budget - (Actual quantity x Standard price)
= $131,300 - (23 x $2,800)
= $64,900
Since the variable cost variance is $0, the total actual "Employee salaries and wages" cost is equal to the fixed cost component of $58,500.
Therefore, the closest option to the planning budget figure of $84,300 for "Employee salaries and wages" is option A) $84,300 - $70,500 + $58,500 = $72,300.
The variable cost component is $2,800 ($100 x 28) per container, which gives us a total variable cost of $72,800 ($2,800 x 26) for 26 containers as per the planning budget.
Thus, the total cost in the planning budget is $131,300 ($58,500 + $72,800).
To calculate the actual "Employee salaries and wages" cost, we need to use the actual number of containers refurbished (23) instead of the planned number (26).
Variable cost for 23 containers = $2,300 ($100 x 23)
Fixed cost remains the same at $58,500
Total cost for 23 containers = $60,800 ($58,500 + $2,300)
Subtracting total cost for 23 containers from the total cost for 26 containers in the planning budget gives us the flexible budget variance:
Flexible budget variance = Planning budget - Flexible budget
= ($131,300 - $60,800)
= $70,500
This variance can be split into its component parts:
1. Variable cost variance = (Actual quantity x Standard price) - (Actual quantity x Actual price)
= (23 x $100) - (23 x $100)
= $0
2. Fixed cost variance = Planning Budget - (Actual quantity x Standard price)
= $131,300 - (23 x $2,800)
= $64,900
Since the variable cost variance is $0, the total actual "Employee salaries and wages" cost is equal to the fixed cost component of $58,500.
Therefore, the closest option to the planning budget figure of $84,300 for "Employee salaries and wages" is option A) $84,300 - $70,500 + $58,500 = $72,300.
Learning Objectives
- Absorb the fundamentals of flexible budgeting and its capability to adjust to different rates of activity.
- Discern the impact of fixed and variable costs on budget development and regulation.
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