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	$fill in the blank 1	$ fill in the blank 2	$ fill in the blank 3	$ fill in the blank 4
Direct labor	fill in the blank 5	fill in the blank 6	fill in the blank 7	fill in the blank 8
Variable overhead	fill in the blank 9	fill in the blank 10	fill in the blank 11	fill in the blank 12
Fixed overhead		fill in the blank 13	fill in the blank 14	fill in the blank 15
Total		$fill in the blank 16	$fill in the blank 17	$fill in the blank 18

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 $fill in the blank 19

Unit cost at 4,000 units $fill in the blank 20

Unit cost at 4,500 units $fill in the blank 21

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

The cost per unit

goes downgoes up

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