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Flexible Budget

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Chambers Company uses budgets in controlling costs. The May 2005 budget
report for the company's Packaging Department is as follows.
Budget Report
Packaging Department
For the Month Ended May 31, 2005
Favorable F
Manufacturing Costs Budget Actual Unfavorable U
Variable costs
Direct materials $ 35,000 $ 37,500 $2,500 U
Direct labor 50,000 53,000 3,000 U
Indirect materials 15,000 15,200 200 U
Indirect labor 12,500 13,000 500 U
Utilities 7,500 7,100 400 F
Maintenance 5,000 5,200 200 U
Total variable 125,000 131,000 6,000 U
Fixed costs
Rent 8,000 8,000 -0-
Supervision 9,000 9,000 -0-
Depreciation 5,000 5,000 -0-
Total fixed 22,000 22,000 -0-
Total costs $147,000 $153,000 $6,000 U
The monthly budget amounts in the report were based on an expected production of
50,000 units per month or 600,000 units per year.
Prepare flexible budget, budget
report, and graph for manufacturing
(SO 3)
State total budgeted cost formula,
and prepare flexible
budget reports for 2 time
(SO 2, 3)
(a) Total costs: 22,500 DLH,
$79,500; 30,000 DLH,
(b) Budget $90,500
Actual $86,500
Problems: Set A 433
The company president was displeased with the department manager's performance.
The department manager, who thought he had done a good job, could not understand
the unfavorable results. In May, 55,000 units were produced.
(a) State the total budgeted cost formula.
(b) Prepare a budget report for May using flexible budget data. Why does this report provide
a better basis for evaluating performance than the report based on static budget
(c) In June, 40,000 units were produced. Prepare the budget report using flexible budget
data, assuming (1) each variable cost was 20% less in June than its actual cost in May,
and (2) fixed costs were the same in the month of June as in May.

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Solution Preview

(a) State the total budgeted cost formula.

The budgeted cost formula expresess the total cost as a sum of fixed cost + variable cost X number of units. Using the budgeted data, we find that the fixed cost is 22,000. The total variable cost is 125,000 and the number of units is 50,000. The variable cost per unit is ...

Solution Summary

The solution explains how to prepare a flexible budget