Cost behaviour analysis for the four activity centres in the billing department of Fargo Power Company is given next.
The billing department constructs a flexible budget for each activity centre based on the following ranges of cost-driver activity.
1 Develop flexible-budget formulas for each of the four activity centres.
2 Compute the budgeted total cost in each activity centre for each of these levels of cost-driver activity: (a) the smallest activity in the relevant range, (b) the midpoint of the relevant range and (c) the highest activity in the relevant range.
3 Determine the total cost function for the billing department.
4 The following table gives the actual results for the billing department. Prepare a cost-control performance report comparing the flexible budget to actual results for each activity centre. Compute flexible-budget variances.
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