Cost behavior analysis for the four activity centers in the billing department of Fargo Power Company is given next.
The billing department constructs a flexible budget for each activity center based on the following ranges of cost-driver activity.
1. Develop flexible-budget formulas for each of the four activity centers.
2. Compute the budgeted total cost in each activity center 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 center. Compute flexible-budget variances.