Question
A manufacturing company prepares a flexible budget for
its production costs. At 60% capacity, its total cost is ₹6,00,000, including ₹2,40,000 fixed cost. When operating at 80% capacity, what should be the total budgeted cost?Solution
At 60% capacity: Variable cost = ₹6,00,000 – ₹2,40,000 = ₹3,60,000 Variable cost per % = ₹3,60,000 / 60 = ₹6,000 At 80%: Variable cost = 80 × ₹6,000 = ₹4,80,000 Total cost = Fixed (₹2,40,000) + Variable (₹4,80,000) = ₹7,20,000
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