ABC has the following flexible-budget formula:

Y = $14MH + $460,000

MH is machine hours.

What is ABC's budgeted total cost if its machine hours equal 26,000?

Question

ABC has the following flexible-budget formula:

Y = $14MH + $460,000

MH is machine hours.

What is ABC's budgeted total cost if its machine hours equal 26,000?

BlackTom AI · Accepted Answer

Flexible-budget cost equals the variable cost per activity multiplied by the activity level plus the fixed cost, so use Y = $14 × MH + $460,000.

1) Relevant knowledge points and concepts
- A flexible budget expresses total budgeted cost as the sum of a variable cost component (unit variable cost × activity level) and a fixed cost component (independent of activity).
- Here the variable cost rate is $14 per machine hour (MH) and the fixed cost is $460,000.

2) Step-by-step reasoning and substitution
- Given MH = 26,000, substitute into the formula:
  Y = $14 × 26,000 + $460,000

3) Calculations with intermediate steps
- Compute the variable portion: $14 × 26,000
  14 × 26,000 = (10 × 26,000) + (4 × 26,000) = 260,000 + 104,000 = 364,000
- Add the fixed portion: 364,000 + 460,000 = 824,000

4) Why the correct answer is correct
- The computed total includes both the variable costs that change with machine hours ($364,000 for 26,000 MH) and the fixed costs that remain constant ($460,000). Summing them yields $824,000, which exactly matches the flexible-budget formula applied at 26,000 MH.

5) Why the other options are incorrect
- $1,284,000: This overstates the total; it would require an erroneous calculation or a much larger activity level. It does not equal $14×26,000 + $460,000.
- $460,000: This is only the fixed cost component (the flexible budget at MH = 0), so it omits the variable cost for 26,000 MH.
- $364,000: This is only the variable portion ($14×26,000) and omits the fixed $460,000.

6) Conclusion
- The correct flexible-budget total cost at 26,000 machine hours is $824,000, which matches the provided answer.

ABC has the following flexible-budget formula: Y = $14MH + $460,000 MH is machine hours. What is ABC's budgeted total cost if its machine hours equal 26,000?Single choice

Similar Questions

Which budget evaluates the results of operations at the actual level of activity?

Flexing the budget means

Variable cost per unit and total fixed costs remain constant in the relevant range. Therefore, total fixed costs should not change with the change in activity level and you would take the variable cost per unit times the new activity level to generate the flexible budget line item.

When the activity level of the master/planning/static budget differs from the activity level (cost driver, allocation base; e.g., machine hours), then a flexible budget is needed to match the same activity level that the actuals are based on to truly analyze revenue and spending variances.

Which of the following is TRUE of flexible budget?

The flexible budget for direct materials is computed in which of the following ways?

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