Cornerstone Exercise 12.4 (Algorithmic)

Activity-Based Flexible Budgeting

Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:

• Four welding units, with a lease cost of $14,000 per year per unit
• Six welding employees each paid a salary of $51,000 per year (A total of 12,000 welding hours are supplied by the six workers.)
• Welding supplies: $400 per job
• Welding hours: 4 hours used per job

During the year, the activity operated at 90 percent of capacity and incurred the following actual activity and resource costs.

• Lease cost: $56,000
• Salaries: $321,300
• Parts and supplies: $1,074,900

Required:

1. Please prepare flexible budget formula for the welding activity using welding hours as the driver.