Young Corporation has a high probability of operating at 40,000 activity hours during the upcoming period, and lower probabilities of operating at 30,000 hours and 50,000 hours. The company's flexible budget revealed the following: $$\begin{array} { l c c c }
& \underline { 30,000 \text { Hours } } & \underline { 40,000 \text { Hours } } & \underline { 50,000 \text { Hours } } \
\text { Variable costs } & \$ 135,000 & \$ 180,000 & \$ 225,000 \
\text { Fixed costs } & 720,000 & 720,000 & 720,000
\end{array}$$ If Young operated at 35,000 hours, its total budgeted cost would be:
A) $877,500.
B) $945,000.
C) $787,500.
D) $997,500.
E) $810,000.

Question

Young Corporation has a high probability of operating at 40,000 activity hours during the upcoming period, and lower probabilities of operating at 30,000 hours and 50,000 hours. The company's flexible budget revealed the following: $$\begin{array} { l c c c } 
& \underline { 30,000 \text { Hours } } & \underline { 40,000 \text { Hours } } & \underline { 50,000 \text { Hours } } \
\text { Variable costs } & \$ 135,000 & \$ 180,000 & \$ 225,000 \
\text { Fixed costs } & 720,000 & 720,000 & 720,000
\end{array}$$ If Young operated at 35,000 hours, its total budgeted cost would be:
A) $877,500.
B) $945,000.
C) $787,500.
D) $997,500.
E) $810,000.

Quizplus · Accepted Answer

The variable cost per hour is $180,000 / 40,000 = $4.50. At 35,000 hours, variable costs are 35,000 * $4.50 = $157,500. Total budgeted cost = $157,500 (variable) + $720,000 (fixed) = $877,500.

Young Corporation Has a High Probability of Operating at 40,000