Question

Which of the following mathematical expressions is found in a typical flexible-budget formula for overhead?

A. Total activity units + budgeted fixed overhead cost per unit.

B. Budgeted variable overhead cost per unit + budgeted fixed overhead cost.

C. (Budgeted variable overhead cost per unit x total activity units) + budgeted fixed overhead costs.

D. (Budgeted fixed overhead cost per unit x total activity units) + (budgeted variable overhead cost per unit x total activity units).

E. None of the above.

Answer 1

The correct option for a flexible-budget formula for overhead is (Budgeted variable overhead cost per unit x total activity units) + budgeted fixed overhead costs. Variable overhead costs vary with activity level while fixed overhead costs remain constant.

Step-by-step explanation:

The correct option for a typical flexible-budget formula for overhead is (Budgeted variable overhead cost per unit x total activity units) + budgeted fixed overhead costs, which is option C. In a flexible budget, the variable overhead costs are directly proportional to the level of activity, while the fixed overhead costs remain constant regardless of the activity level.

Therefore, the total variable overhead cost is calculated by multiplying the variable overhead cost per unit with the total activity units, and then added to the fixed overhead costs.