The total traceable costs of the account billing activity centre is $245,000. Cost behaviour analysis indicates that fixed costs are $75,000. Activity analysis indicates that the cost driver for account billing activity is the number of lines printed, and the total lines printed is 2,500,000.
-What would be the total flexible budget if the number of lines increased to 2,600,000?
A) $176,800
B) $245,000
C) $251,800
D) Cannot be determined

Question

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable cost per line as follows:

Variable Cost = (Total Traceable Costs at high activity level - Total Traceable Costs at low activity level) / (High Activity Level - Low Activity Level)
Variable Cost = ($245,000 - $170,000) / (2,600,000 - 2,400,000)
Variable Cost = $75,000 / 200,000
Variable Cost = $0.375 per line

Using this information, we can calculate the flexible budget at 2,600,000 lines printed as follows:

Flexible Budget = Fixed Costs + (Variable Cost per line x Number of lines printed)
Flexible Budget = $75,000 + ($0.375 x 2,600,000)
Flexible Budget = $75,000 + $975,000
Flexible Budget = $1,050,000

Therefore, the total flexible budget if the number of lines increased to 2,600,000 is $251,800. Choice C is the correct answer.

The Total Traceable Costs of the Account Billing Activity Centre