
Prowse Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.

 Fixed Element per MonthVariable Element per Well ServicedRevenue
 
$ 4,000

Employee salaries and wages

$ 43,800

$ 1,000

Servicing materials
 
$ 600

Other expenses

$ 38,200
 
A total of 42 wells were actually serviced during October.

The “Servicing materials” in the flexible budget for October would have been closest to:

Multiple Choice

$25,200

$24,900

$22,200

$21,936

To determine the "Servicing materials" in the flexible budget for October, we need to apply the following approach:

1. **Identify the relevant variable cost element per well serviced.**  
   - The cost for **servicing materials** per well serviced is $600.

2. **Multiply the variable cost per well by the actual number of wells serviced.**  
   - The number of wells serviced in October is 42.

So, the total cost for **servicing materials** would be calculated as:

\[
\text{Total Servicing Materials Cost} = \text{Variable Cost per Well} \times \text{Number of Wells Serviced}
\]

\[
\text{Total Servicing Materials Cost} = 600 \times 42 = 25,200
\]

### Conclusion:
The "Servicing materials" cost in the flexible budget for October would have been closest to **$25,200**.

The correct answer is: **$25,200**.

Would you like further clarification or details?

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Here are 5 related questions to deepen your understanding:
1. How do fixed costs impact the flexible budget calculation?
2. What is the total cost of servicing wells for Prowse Corporation if both fixed and variable costs are considered?
3. What is the formula for creating a flexible budget with both fixed and variable costs?
4. How would the total cost change if more wells were serviced in the next period?
5. How are employee salaries affected by the number of wells serviced?

**Tip:** When calculating flexible budgets, always separate fixed and variable costs to properly adjust for changes in activity levels.

Prowse Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.

 Fixed Element per Month Variable Element per Well Serviced Revenue
 
$ 4,000

Employee salaries and wages
$ 43,800

$ 1,000

Servicing materials
 
$ 600

Other expenses
$ 38,200
 
A total of 42 wells were actually serviced during October.

The “Servicing materials” in the flexible budget for October would have been closest to:

Multiple Choice

$25,200

$24,900

$22,200

$21,936

Calculate the servicing materials cost for Prowse Corporation's flexible budget in October. Learn how to apply variable cost concepts and budgeting principles to determine the total cost for servicing 42 wells. This example includes step-by-step calculations based on flexible budgeting principles for business and accounting students.

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