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	$51,600	$50,600	$1,000	Favorable
Direct labor	56,400	53,600	2,800	Favorable
Indirect materials	28,800	29,000	200	Unfavorable
Indirect labor	22,800	22,380	420	Favorable
Utilities	15,000	14,860	140	Favorable
Maintenance	8,400	8,740	340	Unfavorable
Total variable	183,000	179,180	3,820	Favorable
Fixed costs
Rent	12,200	12,200	–0–	Neither Favorable nor Unfavorable
Supervision	16,900	16,900	–0–	Neither Favorable nor Unfavorable
Depreciation	7,700	7,700	–0–	Neither Favorable nor Unfavorable
Total fixed	36,800	36,800	–0–	Neither Favorable nor Unfavorable
Total costs	$219,800	$215,980	$3,820	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.

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.

Answer 1