Budgeting - Semi-variable costs

freakyogre

Hi all,

I'm currently studying budgeting and although things are slowly sinking in, I can't seem to get my head around semi-variable costs.

An example i'm looking at now is question 2.2 of the 1st sample assessment for 2010. I've tried to attach a screenshot, but it won't work, so I've typed the question out below.

The question i'm struggling with is:-

Energy cost is semi-variable. The variable element is budgeted at £2.00 per unit of sales.

The original budget figures are:-
Sales revenue - 63000 units = £2,520,000
Energy - £151,000

In the budget I need to fill in, the actual energy figure is £164,000. Sales revenue is 68,000 units = £2,856,000

I can see from the answers that it is £161,000, but just can't figure it out

I thought i'd got this, but it's totally stumped me! I wish the answers showed an explanation at times.

Thank you for any help

Nps

Hi, There are 2 ways of working it out, but the easiest is this. You've made 5000 extra units than budgeted for. Each unit has a variable cost of £2 for electricity, so the new flexed electricity cost must be £10,000 higher than budgeted, hence 161,000. Alternatively, you could work out the fixed element and then add on 68000 x 2 but this particular question doesn't need you to make it that complicated.

freakyogre

Thank you so much. I didn't realise that's all that was needed!