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.

In September, 68,000 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.)

Answer 1

Solution:

Prepare a budget report for 68,000 units using flexible budget data as follows:

flexible Budget Report For month ended Spetember 31,2020
	Budget	Actual cost	Difference	Favorable or Unfavorable Neither Favorable nor Unfavorable
Units	68,000	68,000
Varible cost
Direct material	57,120 (53,760 /64,000)*68,000	58,036 (52,760*110%)	916	Unfavorable
Direct labour	65,280 (61,440/64,000)*68,000	64,174 (58,340*110%)	1,106	Favorable
Indirect material	27,200 (25,600/64,000)*68,000	28,270 (25,700*110%)	1,070	Unfavorable
Indirect labour	20,400 (19,200/64,000)*68,000	20,603 (18,730*110%)	203	Unfavorable
utilities	23,800 (22,400/64,000)*68,000	24,464 (22,240*110%)	664	Unfavorable
Maintenance	8,160 (7,680/64,000)*68,000	8,734 (7,940*110%)	574	Unfavorable
Total Varible cost	178,160	204,281	26,121	Unfavorable
Fixed cost
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 cost	32,000	32,000	0	Neither Favorable nor Unfavorable
Total cost	210,160	236,281	26,121	Unfavorable

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