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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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Solution Summary

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

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(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 = ...

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