Zelmer Company uses budgets in controlling costs. The August 2008 budget report for the company's Assembling Department is as follows.
For the Month Ended August 31, 2008
Manufacturing Costs Budget Actual Unfavorable U
Direct materials $ 48,000 $ 47,000 $1,000 F
Direct labor 54,000 51,300 2,700 F
Indirect materials 24,000 24,200 200 U
Indirect labor 18,000 17,500 500 U
Utilities 15,000 14,900 100 F
Maintenance 9,000 9,200 200 U
Total variable 168,000 164,100 3,900 F
Rent 12,000 12,000 -0-
Supervision 17,000 17,000 -0-
Depreciation 7,000 7,000 -0-
Total fixed 36,000 36,000 -0-
Total costs $204,000 $200,100 $3,900 F
The monthly budget amounts in the report were based on an expected production of 60,000 units per month or 720,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August, because only 58,000 units were produced.
State total budgeted cost formula, and prepare flexible budget reports for 2 time periods.
(a) State the total monthly budgeted cost formula.
(b) Prepare a budget report for August using flexible budget data. Why does this report provide a better basis for evaluating performance than the report based on static budget data?
(b) Budget $198,400
(c) In September, 64,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August.
The solution explains how to determine the cost formula and prepare a felxible budget