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Managerial Accounting

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Creating a Budget for Headphones

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Horngreen Industries' master budget was based on a level of activity of producing and selling 85,000 headphones with a retail price of \$300 per unit. The company has the capacity to produce 100,000 units. Variable labor costs were budgeted to be \$6,375,000. Variable material costs were budgeted to be \$4,080,000 and variable overhead costs were budgeted to be \$6,630,000. Actual material costs incurred were \$7,500,200 on 95,000 units produced and sold.

What should the flexible budget variable overhead cost be under the new activity level?

A

$7,410,000

B

$6,630,000

C

$5,000,000

D

$5,800,255