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In a flexible budget covering 10,000 to 20,000 units, what happens to supervisor salary, depreciation and machine rental?
AThey rise in step with the unit levels
BThey fall as units produced increase
CThey stay at $70,000 at every level
DThey are excluded from the budget
Answer & Solution
Correct answer: C. They stay at $70,000 at every level
1. The budget separates variable costs from fixed costs at each activity level.
2. Supervisor salary of $60,000, depreciation of $7,000 and machine rental of $3,000 are the fixed group.
3. Their total is $70,000, and it is the same at every one of the production levels shown.
4. Packing materials, direct labor and variable utilities are the costs that move with volume.
5. Total budgeted cost changes between levels only because the variable group changes.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.3 Flexible Budget_
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