ExpertMedium2 marksMultiple Choice
ACCA · Question 24 · D. Budgeting
A public transport authority originally budgeted for 10,000 bus journeys in a month, with total variable fuel costs of $50,000 and fixed administrative costs of $30,000.
Due to a major sporting event, actual bus journeys were 12,000.
When preparing a flexible budget to evaluate performance, what should be the flexed budget allowance for total costs?
A public transport authority originally budgeted for 10,000 bus journeys in a month, with total variable fuel costs of $50,000 and fixed administrative costs of $30,000.
Due to a major sporting event, actual bus journeys were 12,000.
When preparing a flexible budget to evaluate performance, what should be the flexed budget allowance for total costs?
Answer options:
A.
$80,000
B.
$90,000
C.
$96,000
D.
$110,000
How to approach this question
1. Find variable cost per unit. 2. Multiply by actual units to get flexed variable cost. 3. Add original fixed costs (they don't flex).
Full Answer
B.$90,000✓ Correct
1. Variable cost per journey = $50,000 / 10,000 = $5.
2. Flexed variable cost for 12,000 journeys = 12,000 * $5 = $60,000.
3. Fixed costs do not change with activity, so they remain $30,000.
4. Total flexed budget allowance = $60,000 + $30,000 = $90,000.
Common mistakes
Flexing the fixed costs as well as the variable costs (resulting in $96,000).
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