Aaron\'s chairs is in the process of preparing a production cost budget for Augu
ID: 2765846 • Letter: A
Question
Aaron's chairs is in the process of preparing a production cost budget for August. Actual costs in July for 120 chairs were:
Materials cost
$4,720
Labor cost
2,550
Rent
1,500
Depreciation
2,500
Other fixed costs
3,200
Materials and labor are the only variable costs. If production and sales are budgeted to increase to 130 chairs in August, how much is the expected total variable cost on the August budget?
Materials cost
$4,720
Labor cost
2,550
Rent
1,500
Depreciation
2,500
Other fixed costs
3,200
Explanation / Answer
Expected total variable cost:
Material Cost for July = $4,720
Material cost per chair = $39.33 ($4720 / 120 chairs)
Labor cost for July = $2,550
Labor cost per chair = $21.25 ($2550 / 120 chairs)
Budgeted production and sales for August = 130 chairs
Given that material and labor are the only variable costs
Budgeted Material cost for August (130 chairs * $39.33) = $5,113
Budgeted labor cost for August (130 chairs * $21.25) = $2,763
Total Variable cost for August = $7,876