Question

Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the company’s Assembling Department is as follows. RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2020 Difference Manufacturing Costs Budget Actual Favorable Unfavorable Neither Favorable nor Unfavorable Variable costs Direct materials $48,000 $47,000 $1,000 Favorable Direct labor 54,000 51,200 2,800 Favorable Indirect materials 24,000 24,200 200 Unfavorable Indirect labor 18,000 17,500 500 Favorable Utilities 15,000 14,900 100 Favorable Maintenance 12,000 12,400 400 Unfavorable Total variable 171,000 167,200 3,800 Favorable Fixed costs Rent 12,000 12,000 –0– Neither Favorable nor Unfavorable Supervision 17,000 17,000 –0– Neither Favorable nor Unfavorable Depreciation 6,000 6,000 –0– Neither Favorable nor Unfavorable Total fixed 35,000 35,000 –0– Neither Favorable nor Unfavorable Total costs $206,000 $202,200 $3,800 Favorable 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. (a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) The formula is $ + variable costs of $ per unit. (b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.) RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended August 31, 2020 Difference Budget Actual Costs Favorable Unfavorable Neither Favorable nor Unfavorable $ $ $ $ $ $ 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. (List variable costs before fixed costs.) RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended September 30, 2020 Difference Budget Actual Costs Favorable Unfavorable Neither Favorable nor Unfavorable $ $ $ $ $ $

Answer 1

Part 1

RATCHET COMPANY

Assembling Department

For the Month Ended August 31, 2020

	Budget at	Actual costs at	Difference	Favorable F / unfavorable U
units	58000 units	58000 units
Variable costs
Direct materials (0.8*58000)	46400	47000	600	U
Direct labor (0.9*58000)	52200	51200	1000	F
Indirect materials (0.4*58000)	23200	24200	1000	U
Indirect labor (0.3*58000)	17400	17500	100	U
Utilities (0.25*58000)	14500	14900	400	U
Maintenance (0.2*58000)	11600	12400	800	U
Total variable costs	165300	167200	1900	U
Fixed costs
Rent	12000	12000	0
Supervision	17000	17000	0
Depreciation	6000	6000	0
Total fixed costs	35000	35000	0
Total costs	200300	202200	1900	U

Direct materials =48000/60000 = 0.8

Direct labor = 54000/60000 = 0.9

Indirect materials =24000/60000 = 0.4

Indirect labor = 18000/60000 = 0.3

Utilities = 15000/60000= 0.25

Maintenance = 12000/60000 = 0.2

Part 2

RATCHET COMPANY

Assembling Department

For the Month Ended September, 2020

	Budget at	Actual costs at	Difference	Favorable F / unfavorable U
units	64000 units	64000 units
Variable costs
Direct materials (0.8*64000)	51200	51700	500	U
Direct labor (0.9*64000)	57600	56320	1280	F
Indirect materials (0.4*64000)	25600	26620	1020	U
Indirect labor (0.3*64000)	19200	19250	50	U
Utilities (0.25*64000)	16000	16390	390	U
Maintenance (0.2*64000)	12800	13640	840	U
Total variable costs	182400	183920	1520	U
Fixed costs
Rent	12000	12000	0
Supervision	17000	17000	0
Depreciation	6000	6000	0
Total fixed costs	35000	35000	0
Total costs	217400	218920	1520	U

Direct materials =47000*1.10 = 51700

Direct labor = 51200*1.10= 56320

Indirect materials =24200*1.10 = 26620

Indirect labor = 17500*1.10 = 19250

Utilities = 14900*1.10 = 16390

Maintenance = 12400*1.10 = 13640