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 $50,020 $48,920 $1,100 Favorable    Direct labor 54,900 52,000 2,900 Favorable    Indirect materials 29,280 29,580 300 Unfavorable    Indirect labor 20,740 20,290 450 Favorable    Utilities 21,350 21,180 170 Favorable    Maintenance 7,320 7,590 270 Unfavorable       Total variable 183,610 179,560 4,050 Favorable Fixed costs    Rent 12,800 12,800 –0– Neither Favorable nor Unfavorable    Supervision 17,400 17,400 –0– Neither Favorable nor Unfavorable    Depreciation 7,500 7,500 –0– Neither Favorable nor Unfavorable       Total fixed 37,700 37,700 –0– Neither Favorable nor Unfavorable Total costs $221,310 $217,260 $4,050 Favorable The monthly budget amounts in the report were based on an expected production of 61,000 units per month or 732,000 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 59,000 units were produced.

(a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) (b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.) In September, 65,000 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

	Variable cost per unit = 183610/61000
			3.01
a)	the Formula is
	$37,700	+	variable cost of		$3.01	per unit
b)			Flexible budget
				Budget	Actual	Difference
	Activity level			59,000	59000
	Variable costs
	Direct materials		0.82	48380	48,920	540	U
	direct labor		0.9	53100	52,000	1,100	F
	indirect materials		0.48	28320	29,580	1,260	U
	indirect labor		0.34	20060	20,290	230	U
	Utilities		0.35	20650	21,180	530	U
	Maintenance		0.12	7080	7,590	510	U
	total variable costs		3.01	177590	179,560	1,970	U
	Fixed cost
	Rent			12,800	12,800	0	N
	supervision			17,400	17,400	0	N
	Depreciation			7,500	7,500	0	N
	total fixed cost			37,700	37,700	0	N
	total cost			215,290	217,260	1,970	U
c)			Flexible budget
				Budget	Actual	Difference
	Activity level			65,000	65000
	Variable costs
	Direct materials		0.82	53300	53,812	512	U
	direct labor		0.9	58500	57,200	1,300	F
	indirect materials		0.48	31200	32,538	1,338	U
	indirect labor		0.34	22100	22,319	219	U
	Utilities		0.35	22750	23,298	548	U
	Maintenance		0.12	7800	8,349	549	U
	total variable costs		3.01	195650	197,516	1,866	U
	Fixed cost
	Rent			12,800	12,800	0	N
	supervision			17,400	17,400	0	N
	Depreciation			7,500	7,500	0	N
	total fixed cost			37,700	37,700	0	N
	total cost			233,350	235,216	1,866	U