2. Pargo Corporation bases its budgets on the activity measure customers served.

Question

2. Pargo Corporation bases its budgets on the activity measure customers served. During May, the company planned to serve 29,000 customers, but actually served 30,000 customers. The company provided the following data concerning the formulas it uses in its budgeting: Fixed element Revenue Wages and salaries Supplies Insurance Miscellaneous expense per month $ 32,700 $ 7,600 Variable element per customer $ 4.30 $ 1.50 $ 0.70 $ 0.00 $0.30 $ 7,100 Required Prepare the company's flexible budget for May based on the actual level of activity for the month Answer: Pargo Corporation Flexible Budget For the Month Ended May 31 Actual customers served Revenue Expenses Wages and salaries Supplies Insurance Miscellaneous expense Total expense Net operating income

Explanation / Answer

Flexible budget actual customer served 30000 Revenue 129000 (30000*4.3) Expenses Wages and salaries 77700 (30000*1.5+32700) Supplies 21000 (30000*.7) Insurance 7600 Misc. Expense 16100 (30000*.3+7100) Total expense 122400 Net operating income 6600

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