ExpertMedium2 marksMultiple Choice
ACCA · Question 21 · Budgeting
A cloud hosting company prepared a fixed budget for 5,000 server deployments, estimating total costs of $250,000 (comprising $100,000 fixed costs and $150,000 variable costs).
Actual deployments were 6,000.
What should be the total cost allowance in the flexible budget for control purposes?
A cloud hosting company prepared a fixed budget for 5,000 server deployments, estimating total costs of $250,000 (comprising $100,000 fixed costs and $150,000 variable costs).
Actual deployments were 6,000.
What should be the total cost allowance in the flexible budget for control purposes?
Answer options:
A.
$250,000
B.
$280,000
C.
$300,000
D.
$330,000
How to approach this question
Separate fixed and variable costs. Calculate the variable cost per unit from the original budget. Multiply this by the actual activity level, then add back the original fixed costs.
Full Answer
B.$280,000✓ Correct
Original variable cost per unit = $150,000 / 5,000 = $30 per deployment.
For 6,000 deployments, flexed variable cost = 6,000 * $30 = $180,000.
Fixed costs remain at $100,000.
Total flexible budget = $100,000 + $180,000 = $280,000.
Common mistakes
Flexing the fixed costs as well (resulting in $300,000).
Practice the full ACCA MA — Management Accounting Practice Exam 2
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