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# Budgeted cost

Parki82
Registered Posts:

**50**
Sorry if I’m missing something but can someone clear this up for me?

I’m working through this task but can’t understand why we are including the fixed overheads in the formula.

Surely we need to remove them so 37300-7000= 30300

Divide by 10000 then x 10500 units then add the fixed costs back making the budgeted cost for actual production to be 38815???

But the answer is 39165 so they are including the fixed overheads in the above! Surely this is treating the fixed overheads as a variable cost???

What am I missing here??

I’m working through this task but can’t understand why we are including the fixed overheads in the formula.

Surely we need to remove them so 37300-7000= 30300

Divide by 10000 then x 10500 units then add the fixed costs back making the budgeted cost for actual production to be 38815???

But the answer is 39165 so they are including the fixed overheads in the above! Surely this is treating the fixed overheads as a variable cost???

What am I missing here??

0

## Comments

144The overhead amount is flexed due to it being calculated on a per unit absorption basis. Think of it as being budgeted to cost as £0.70 per unit rather than by the total of 7000. So when you make extra units the expenditure is over absorbed due to the volume.

£38589 +Favourable - Adverse is the other way you could find the starting figure.