Asked by Hanna Jordan on Jul 19, 2024
Verified
Ruozzo Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for July. When the company prepared its planning budget at the beginning of July, it assumed that 27 customers would have been served. However, 22 customers were actually served during July.The "Employee salaries and wages" in the flexible budget for July would have been closest to:
A) $67,400
B) $63,300
C) $77,686
D) $62,900
Flexible Budget
A budget that adjusts or flexes with changes in volume or activity, allowing better comparisons and analysis of performance.
Employee Salaries
Regular payments made by an employer to an employee, typically on a monthly or biweekly basis, in exchange for the employee's work.
Variable Cost
An expense that changes in proportion to the production output or sales of a company.
- Gain insight into the principles of a flexible budget and the alterations it may undergo.
Verified Answer
Variable cost per customer = ($22,530 - $11,565) / 54 = $203.61
Flexible budget for employee salaries and wages = Fixed Cost + (Variable Cost per Customer x Actual Customers Served)
= $28,000 + ($203.61 x 22)
= $28,000 + $4,479.42
= $32,479.42
Therefore, the closest answer is choice D: $62,900.
Learning Objectives
- Gain insight into the principles of a flexible budget and the alterations it may undergo.
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