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    Flexible Budget of Activity Based Costing

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    CBA, a bicycle manufacturer, uses an activity based costing system for budgeting. CBA has identified four cost centers and their associated cost-drivers. The variable and fixed costs for each activity are listed below, along with cost-driver activity.
    Activity
    Processing Administration
    Variable Cost
    $160,000 $1,600
    Fixed Cost
    $20,000 $20,000
    Cost Driver Activity
    18,000 machine hours 6,000 units
    Setup  $12,000
    $16,000 12 setups
    Assembly $80,000
    $10,000 3,000 assembly line hours
    CBA has developed a flexible budget for each activity based on the following activity. We assume that the manufacturer sells each unit of its product for $65.
    Activity
    Setup Assembly
    Activity Level
    10 12 14 2,500 3,000 3,500
    Cost Driver
    Number of Setups Assembly Line Hours
    (Sales in Units) 5,000
    6,000 7,000
    Processing 15,000
    18,000 21,000 Machine Hours
    Administration 5,000

    6,000 7,000 Units

    (1) Develop flexible budget formula for each of the activities.
    (2) Calculate the budgeted total cost for all the activity level in each of the activity centers.
    (3) Determine the total costs and operating incomes for the manufacturer under each of the
    activity levels.
    (4) Given the actual results in the following table, prepare a cost control performance report
    comparing the flexible budget to actual results for each activity, including flexible-budget variances. Similarly prepare an overall performance report for operating income.
    Activity
    (Sales in Dollars) Processing Administration
    Actual Activity Level
    $420,00 19,000 6,500
    Actual Cost
    $195,000 $22,600
    (Sales in Units)

    6,500
    Setup
    13 $28,400
    Assembly
    3,200 $100,000

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    https://brainmass.com/business/accounting-standards/flexible-budget-of-activity-based-costing-579654

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    Solution Preview

    (1)
    Flexible budget formula for each activity

    Setup = 16,000 + 1,000 (i.e. 12,000/12) * per setup
    Processing = 20,000 + 8.89 (i.e. 160,000 /18,000) * per machine hour
    Assembly = 10,000 + 26.67 (i.e. 80,000/3,000) * per assembly line hour
    Administration = 20,000 + 0.27 (i.e. 1,600/6,000) * per unit

    (2)
    Activity Level = 5,000

    Setup = 16,000 + 1,000 * 10 = 26,000
    Processing = 20,000 + 8.89 * 15,000 = 153,350
    Assembly = 10,000 + 26.67 * 2,500 = 76,675
    Administration = 20,000 + 0.27 * 5,000 = 21,350

    Total Cost = 26,000 + 153,350 + 76,675 + 21,350 = 277,375

    Activity Level = 6,000

    Setup = ...

    Solution Summary

    A solution to an activity based costing accounting question. Comparing actual results with flexible budget.

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