Laurie Inc.'s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor salaries of $25,000. A flexible budget for 12,000 units of production would show

A) the same cost structure in total
B) direct materials of $72,000, direct labor of $52,800, fixed utilities of $5,000, and supervisor salaries of $25,000
C) total variable costs of $159,800
D) direct materials of $60,000, direct labor of $52,800, fixed utilities of $6,000, and supervisor salaries of $25,000

Question

Taylor Allen · Accepted Answer

Final Answer : B, Explanation :  A flexible budget adjusts costs based on changes in the level of output. For Laurie Inc., direct materials and direct labor are variable costs that will increase in proportion to the increase in production from 10,000 to 12,000 units. The costs for fixed utilities and supervisor salaries remain constant regardless of the level of production. Therefore, for 12,000 units, direct materials and direct labor costs increase proportionally (by 20%), while fixed utilities and supervisor salaries remain unchanged.

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