# Annual Budget

The EBC Medical Center uses a normal costing system to develop its annual budget. EBC operates it own copy shop to handle large scale photocopying and reproduction jobs. For the upcoming twelve months, the copy shop assumes the following:

Fixed costs = $175,000

Variable costs = $0.07 per page

Expected volume = 925,000 pages

a. Calculate the total expected costs for the copy shop.

b. Using pages as the base, calculate the Normal Application Rate.

c. In preparing the budget for the Public Relations Department, it is assumed that the department will have 77,500 pages of work for the copy shop. How much should the department be budgeted for copying?

d. The office manager of the PR department is shocked at how much they will have to pay for copying. He has decided that his department will use Kinkos for all of its 77,500 copies. He has worked out an agreement with Kinkos to pay a flat annual fee of $15,000 plus $0.10 per page. How much in savings or additional costs to EBC has the manager of the PR Department generated?

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#### Solution Preview

a. Calculate the total expected costs for the copy shop.

For the copy shop.

Fixed costs = $175,000

Variable costs = $0.07 per page

Expected volume = 925,000 pages

Calculation of expected cost:

Fixed costs= $175,000

Variable Cost= Variable cost per page x Expected Volume= $64,750 =0.07*925000

Total expected cost= $239,750 =175000+64750

b. Using pages as the base, calculate the Normal Application Rate.

Total fixed cost= $175,000

Budgeted volume= 925,000 pages

Therefore Normal overhead application rate= $0.19 ...

#### Solution Summary

Calculates costs for the annual budget