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. CONCEPTUAL CONNECTION 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 units $

Unit cost at 4,000 units $

Unit cost at 4,500 units $

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

The cost per unit as the number of units produced increases because fixed cost is spread over a greater number of units.