MC Question 21
The following scenario relates to questions 21–25.
Corfe Co is a business which manufactures computer laptop batteries and it has developed a new battery which has a longer usage time than batteries currently available in laptops. The selling price of the battery is forecast to be $45.
The maximum production capacity of Corfe Co is 262,500 units. The company’s management accountant is currently preparing an annual flexible budget and has collected the following information so far:
| Production (units) | 185,000 | 200,000 | 225,000 |
|---|---|---|---|
| $ | $ | $ | |
| Material costs | 740,000 | 800,000 | 900,000 |
| Labour costs | 1,017,500 | 1,100,000 | 1,237,500 |
| Fixed costs | 750,000 | 750,000 | 750,000 |
In addition to the above costs, the management accountant estimates that for each increment of 50,000 units produced, one supervisor will need to be employed. A supervisor’s annual salary is $35,000.
The production manager does not understand why the flexible budgets have been produced as he has always used a fixed budget previously.
21. Assuming the budgeted figures are correct, what would the flexed total production cost be if production is 80% of maximum capacity?
A $2,735,000
B $2,770,000
C $2,885,000
D $2,920,000