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	$54,600	$53,500	$1,100	Favorable
Direct labor	63,700	60,600	3,100	Favorable
Indirect materials	31,200	31,400	200	Unfavorable
Indirect labor	19,500	19,100	400	Favorable
Utilities	19,500	19,370	130	Favorable
Maintenance	7,800	8,010	210	Unfavorable
Total variable	196,300	191,980	4,320	Favorable
Fixed costs
Rent	10,900	10,900	–0–	Neither Favorable nor Unfavorable
Supervision	17,800	17,800	–0–	Neither Favorable nor Unfavorable
Depreciation	7,000	7,000	–0–	Neither Favorable nor Unfavorable
Total fixed	35,700	35,700	–0–	Neither Favorable nor Unfavorable
Total costs	$232,000	$227,680	$4,320	Favorable

The monthly budget amounts in the report were based on an expected production of 65,000 units per month or 780,000 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 63,000 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

$ 35700 +3.02 per unit

B. Prepare a budget report for August using flexible budget data

C. In September, 69,000 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

B.

RATCHET COMPANY Budget Report Assembly Department For The Month Ended August 31, 2020
	Budget	Actual	Difference
Variable costs:
Direct material ($54,600/65,000)=$0.84	$52,920 (63,000*$0.84)	$53,500	$580	Unfavorable
Direct labor ($63,700/65,000)=$0.98	61,740 (63,000*$0.98)	60,600	1,140	Favorable
Indirect materials ($31,200/65,000)=$0.48	30,240 (63,000*$0.48)	31,400	1,160	Unfavorable
Indirect labor ($19,500/65,000)=$0.3	18,900 (63,000*$0.3)	19,100	200	Unfavorable
Utilities ($19,500/65,000)=$0.3	18,900 (63,000*$0.3)	19,370	470	Unfavorable
Maintenance ($7,800/65,000)=$0.12	7,560 (63,000*$0.12)	8,010	450	Unfavorable
Total variable	190,260	191,980	1,720	Unfavorable
Fixed costs:
Rent	10,900	10,900	0	Neither favorable nor unfavorable
Supervision	17,800	17,800	0	Neither favorable nor unfavorable
Depreciation	7,000	7,000	0	Neither favorable nor unfavorable
Total fixed	35,700	35,700	0	Neither favorable nor unfavorable
Total costs	$225,960	$227,680	$1,720	Unfavorable

C.

RATCHET COMPANY Budget Report Assembly Department For The Month Ended September 30, 2020
	Budget	Actual	Difference
Variable costs:
Direct material ($54,600/65,000)=$0.84	$57,960 (69,000*$0.84)	$58,850 (53,500+10%)	$890	Unfavorable
Direct labor ($63,700/65,000)=$0.98	67,620 (69,000*$0.98)	66,660 (60,600+10%)	960	Favorable
Indirect materials ($31,200/65,000)=$0.48	33,120 (69,000*$0.48)	34,540 (31,400+10%)	1,420	Unfavorable
Indirect labor ($19,500/65,000)=$0.3	20,700 (69,000*$0.3)	21,010 (19,100+10%)	310	Unfavorable
Utilities ($19,500/65,000)=$0.3	20,700 (69,000*$0.3)	21,307 (19,370+10%)	607	Unfavorable
Maintenance ($7,800/65,000)=$0.12	8,280 (69,000*$0.12)	8,811 (8,010+10%)	531	Unfavorable
Total variable	208,380	211,178	2,798	Unfavorable
Fixed costs:
Rent	10,900	10,900	0	Neither favorable nor unfavorable
Supervision	17,800	17,800	0	Neither favorable nor unfavorable
Depreciation	7,000	7,000	0	Neither favorable nor unfavorable
Total fixed	35,700	35,700	0	Neither favorable nor unfavorable
Total costs	$244,080	$246,878	$2,798	Unfavorable