An entity has the following cost components for 100,000 units of product for the year:
Direct materials $200,000
Direct labor 100,000
Manufacturing overhead 200,000
Selling and administrative expense 150,000
All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expenses. The total costs to produce
and sell 110,000 units for the year are

Answer (C) is correct.
REQUIRED: The flexible budget costs for producing and selling a given quantity.
DISCUSSION: Direct materials unit costs are strictly variable at $2 ($200,000 * 100,000 units). Similarly, direct labor has a variable unit cost of $1 ($100,000 * 100,000 units). The $200,000 of manufacturing overhead for 100,000 units is 50%. The variable unit cost is $1. Selling costs are $100,000 fixed and $50,000 variable for production of 100,000 units, and the variable unit selling expenses is $.50 ($50,000 * 100,000 units). The total unit
variable cost is therefore $4.50 ($2 + $1 + $1 + $.50). Fixed costs are $200,000. At a production level of 110,000 units, variable costs are $495,000 (110,000 units x $4.50). Hence, total costs are $695,000 ($495,000 + $200,000). Answer (A) is incorrect. The cost at a production level of 100,000 units is $650,000. Answer (B) is incorrect. The amount of $715,000 assumes a variable unit cost of $6.50 with no fixed costs. Answer (D) is incorrect. Total costs are $695,000 based on a unit variable cost of $4.50 each.