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	$50,740	$49,740	$1,000	Favorable
Direct labor	54,280	51,480	2,800	Favorable
Indirect materials	25,960	26,260	300	Unfavorable
Indirect labor	22,420	21,940	480	Favorable
Utilities	14,750	14,580	170	Favorable
Maintenance	5,900	6,120	220	Unfavorable
Total variable	174,050	170,120	3,930	Favorable
Fixed costs
Rent	10,000	10,000	–0–	Neither Favorable nor Unfavorable
Supervision	18,200	18,200	–0–	Neither Favorable nor Unfavorable
Depreciation	5,200	5,200	–0–	Neither Favorable nor Unfavorable
Total fixed	33,400	33,400	–0–	Neither Favorable nor Unfavorable
Total costs	$207,450	$203,520	$3,930	Favorable

The monthly budget amounts in the report were based on an expected production of 59,000 units per month or 708,000 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 57,000 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 __________ + variable costs of $__________ per unit

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

(c) In September, 63,000 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

(a)	Total monthly budgeted cost formula
	Fixed Cost + Variable cost per unit
	$33400+$2.95 per unit
(b)	Budget Report for August using flexible budget data
		Budget	Actual	Difference
	Variable costs
	Direct Materials	$     49,020	$          49,740	Unfavourable
	Direct Labor	$     52,440	$          51,480	Favourable
	Indirect Materials	$     25,080	$          26,260	Unfavourable
	Indrect Labor	$     21,660	$          21,940	Unfavourable
	Utilities	$     14,250	$          14,580	Unfavourable
	Maintenance	$       5,700	$            6,120	Unfavourable
	Total Variable	$ 168,150	$      170,120	Unfavourable
	Fixed Costs
	Rent	$     10,000	$          10,000	Neither Favourable nor unfavourable
	Supervision	$     18,200	$          18,200	Neither Favourable nor unfavourable
	Depreciation	$       5,200	$            5,200	Neither Favourable nor unfavourable
	Total Fixed	$    33,400	$        33,400	Neither Favourable nor unfavourable
	Total Cost	$ 201,550	$      203,520	Unfavourable
(c)	Budget Report for September using flexible budget data
		Budget	Actual	Difference
	Variable costs
	Direct Materials	$     54,180	$          54,714	Unfavourable
	Direct Labor	$     57,960	$          56,628	Favourable
	Indirect Materials	$     27,720	$          28,886	Unfavourable
	Indrect Labor	$     23,940	$          24,134	Unfavourable
	Utilities	$     15,750	$          16,038	Unfavourable
	Maintenance	$       6,300	$            6,732	Unfavourable
	Total Variable	$ 185,850	$      187,132	Unfavourable
	Fixed Costs
	Rent	$     10,000	$          10,000	Neither Favourable nor unfavourable
	Supervision	$     18,200	$          18,200	Neither Favourable nor unfavourable
	Depreciation	$       5,200	$            5,200	Neither Favourable nor unfavourable
	Total Fixed	$    33,400	$        33,400	Neither Favourable nor unfavourable
	Total Cost	$ 219,250	$      220,532	Unfavourable
	* it is assumed that variable cost increases by 10% in totality and not per unit