A budget for 10,000 units includes direct materials $50,000, direct labour $40,000 and production overheads $30,000. Materials and labour are fully variable. At 8,000 units the production overhead budget would be $27,600. What is the total flexed budget cost for 11,500 units?

Correct answer: B) $135,300

Explanation

Variable overhead per unit (high-low) = (30,000 - 27,600) / (10,000 - 8,000) = $1.20, so fixed overhead = 30,000 - (10,000 x 1.20) = $18,000. At 11,500 units: materials 11,500 x 5 = 57,500; labour 11,500 x 4 = 46,000; overheads 18,000 + (11,500 x 1.20) = 31,800. Total = $135,300. Treating all costs as variable would give $138,000.