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


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

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