Answer (C) is correct . A flexible budget consists of a fixed cost component and a variable cost component. The fixed cost component can be expected to remain constant throughout the budget’s relevant range. The variable cost component, however, will change at a constant rate within the budget’s range. The increase in budgeted cost of $1,200 ($21,000 – $19,800) per 1,000 units of production can therefore be calculated as the variable cost per unit of $1.20 [($21,000 – $19,800) ÷ 1,000] and the total fixed costs of $9,000 [$21,000 – (10,000 × $1.20)]. These costs can then be used to determine the total cost of using 12,000 units of electricity [(12,000 × $1.20) variable + $9,000 fixed].
Answer (A) is incorrect because The flexible budget for 12,000 units should be computed by determining the variable cost per unit of $1.20 [($21,000 – $19,800) ÷ 1,000] and the total fixed costs of $9,000 [$21,000 – (10,000 × $1.20)]. These costs can then be used to determine the total cost of using 12,000 units of electricity [$9,000 FC + (12,000 × $1.20)].
Answer (B) is incorrect because The flexible budget for 12,000 units should be computed by determining the variable cost per unit of $1.20 [($21,000 – $19,800) ÷ 1,000] and the total fixed costs of $9,000 [$21,000 – (10,000 × $1.20)]. These costs can then be used to determine the total cost of using 12,000 units of electricity [$9,000 FC + (12,000 × $1.20)].
Answer (D) is incorrect because Subtracting the increase in budgeted cost of $1,200 results in $22,200.
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