Flexible Budget for Various Levels of Production Budgeted amounts for the year: Materials 2 leather strips $7.00 Labor 1.5 hr. $18.00 VOH 1.5 hr. $1.20 FOH $6,800 Required: 1. Prepare a flexible budget for 3,500, 4,000, and 4,500 units. Flexible Budget Variable Cost per Unit 3,500 units 4,000 units 4,500 units

Direct materials

Direct labor

Variable overhead

Fixed overhead

Total $2.

Calculate the unit cost at 3,500, 4,000, and 4,500 units. (Note: Round unit costs to the nearest cent.)

Unit cost at 3,500

Unit cost at 4,000

Unit cost at 4,500

What happens to unit cost as the number of units produced increases?

Results are below.

Explanation:

Giving the following information:

Materials 2 leather strips $7.00

Labor 1.5 hr. $18.00

VOH 1.5 hr. $1.20

FOH $6,800

First, we will determine the total cost at different production levels:

3,500:

Direct material= 3,500*7= 24,500

Direct labor= 18*3,500= 63,000

VOH= 3,500*1.2= 4,200

FOH= 6,800

Total cost= $98,500

4,000:

Direct material= 4,000*7= 28,000

Direct labor= 18*4,000= 72,000

VOH= 4,000*1.2= 4,800

FOH= 6,800

Total cost= $111,600

4,500:

Direct material= 4,500*7= 31,500

Direct labor= 18*4,500= 81,000

VOH= 4,500*1.2= 5,400

FOH= 6,800

Total cost= $124,700

Finally, the unitary cost:

3,500:

Unitary cost= 98,500 / 3,500= $28.14

4,000:

Unitary cost= 111,600 / 4,000= $27.9

4,500:

Unitary cost= 124,700 / 4,500= $27.71

The production costs are essentially variable. In unitary bases, they remain constant. The fixed costs vary with the level of production on a unitary basis. Therefore, the higher the units produced, the lower the fixed unitary cost.