A company has the following budget formula for annual electricity expense in its shop: Expense = $7,200 + (Units produced × $0.60) If management expec... Accounting MCQs | Accounting MCQs

A company has the following budget formula for annual electricity expense in its shop: Expense = $7,200 + (Units produced × $0.60) If management expects to produce 20,000 units during February, for the purpose of performance evaluation, what amount of expenses should the company expect to incur in February?

$7,200$12,000$12,600$19,200Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. The formula is for an annual period. Thus, the first step is to divide the $7,200 of fixed costs by 12 months to arrive at monthly fixed costs of $600. Variable costs will be $.60 per unit, or $12,000 for 20,000 units. The total expected expenses are therefore $12,600 ($600 + $12,000).