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	$53,760	$52,760	$1,000	Favorable
Direct labor	61,440	58,340	3,100	Favorable
Indirect materials	25,600	25,700	100	Unfavorable
Indirect labor	19,200	18,730	470	Favorable
Utilities	22,400	22,240	160	Favorable
Maintenance	7,680	7,940	260	Unfavorable
Total variable	190,080	185,710	4,370	Favorable
Fixed costs
Rent	10,500	10,500	–0–	Neither Favorable nor Unfavorable
Supervision	16,100	16,100	–0–	Neither Favorable nor Unfavorable
Depreciation	5,400	5,400	–0–	Neither Favorable nor Unfavorable
Total fixed	32,000	32,000	–0–	Neither Favorable nor Unfavorable
Total costs	$222,080	$217,710	$4,370	Favorable

The monthly budget amounts in the report were based on an expected production of 64,000 units per month or 768,000 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 62,000 units were produced.

Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)

Answer 1