BE10.4 (LO 2), AP Gundy Company expects to produce 1,200,000 units of Product XX in 2020. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted variable manufacturing costs per unit are direct materials $5, direct labor $6, and overhead $8. Budgeted fixed manufacturing costs per unit for depreciation are $2 and for supervision are $1. Prepare a flexible manufacturing budget for the relevant range value using 20,000 unit increments. Prepare a flexible budget for variable costs.

                             80,000 units100,000 units     120,000  units

Variable cost         $1,520,000   $1,900,000       $2,280,000

Total costs          $1,820,000     $2,200,000    $2,580,000

Explanation:

Activity Level    

Finished Units                80,000 units100,000 units     120,000  units

Variable Costs:    

Direct Materials(Units × $5) $400,000     $500,000     $600,000

Direct Labor(Units × $6)       $480,000     $600,000     $720,000

Overhead (Units × $8)        $640,000     $800,000     $960,000

Total Variable Costs        $1,520,000   $1,900,000     $2,280,000

Fixed Costs  

Depreciation                      $200,000            $200,000     $200,000

Supervision                      $100,000            $100,000     $100,000

Total Fixed Costs              $300,000            $300,000     $300,000

So, Total costs               $1,820,000     $2,200,000    $2,580,000

( Variable + Fixed)

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