If the master budget prepared at a volume level of 20,000 units includes direct materials of $80,000, a flexible budget based on a volume of 18,000 units would include direct materials of $72,000.

Question

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Since the direct materials cost is directly proportional to the volume of units produced, a decrease in volume from 20,000 units to 18,000 units would result in a proportional decrease in direct materials cost from $80,000 to $72,000. Therefore, a flexible budget based on 18,000 units would include direct materials of $72,000.

If the Master Budget Prepared at a Volume Level of 20,000