Question is in bold at the end of my worksheet For the month of: November Budget...

Question is in bold at the end of my worksheet

For the month of:	November
	Budget Data
	Fixed	Variable		Actual
	Portion	Portion*		Data
Depreciation	$4,000	--		$4,000
Maintenance	$1,800	$0.70		4,730
Inspections	$2,800	0.25		3,702
Utilities	$4,000	0.20		4,900
Indirect material		0.25		1,125
Overtime		2.25	**	260
	*per direct labor hour
	**per monthly direct labor hours in excess of			4,000
	Planned direct labor hours for the month			4,500
	Actual direct labor hours for the month			4,100
Static Budget		Budget	Actual	Difference
Depreciation		$4,000	$4,000	$0
Maintenance		4,950	4,730	220
Inspections		3,925	3,702	223
Utilities		4,900	4,900	0
Indirect material		1,125	1,125	0
Overtime		1,125	260	865
		$20,025	$18,717	$1,308
Flexible Budget		Budget	Actual	Difference
Depreciation		$4,000	$4,000	$0
Maintenance		4,670	4,730	(60)
Inspections		3,825	3,702	123
Utilities		4,820	4,900	(80)
Indirect material		1,025	1,125	(100)
Overtime		225	260	(35)
		$18,565	$18,717	($152)

The following actual overhead costs were incurred in December:

Depreciation	$4,000
Maintenance	$5,150
Inspections	$3,790
Utilities	$4,900
Indirect material	$1,350
Overtime	$1,125

1. Planned direct labor hours were 4,000. Actual direct labor hours were 4,500. Other budget data for December were identical to November except that fixed maintenance costs have increased to $2,000 and variable indirect materials costs have increased to $0.30 per direct labor hour.

a. Prepare and print new budget reports for December. Remember to change the month in cell B7. Save your file as FLEXBUD4. Compare the two budget reports and comment on the differences disclosed between the static budget and flexible budget performance reports.

b. If you were to suggest a revision to the budget for December, which cost category seems most in need of revision? Assuming that the fixed cost component of this budgeted cost is already correct, what should the variable cost component be so that the budget equals actual? Try difference values in the appropriate cell in the Data Section and write your answer below

Solutions

Expert Solution

For the month of:	December
	Budget Data		Static	Flexible
	Fixed	Variable	Budget	Budget	Actual
	Portion	Portion*	Value	Value	Data
Depreciation	$4,000	--	$4000	$4,000	$4,000
Maintenance	$2000	$0.70	$4,800	$5,150	5,150
Inspections	$2,800	0.25	$3,800	$3,925	3,790
Utilities	$4,000	0.2	$4,800	$4,900	4,900
Indirect material		0.3	$1,200	$1,350	1,350
Overtime		2.25**	Nil	$1,125	1,125
	*per direct labor hour
	**per monthly direct labor hours in excess of				4,000
	Planned direct labor hours for the month				4,000
	Actual direct labor hours for the month				4,500

Static Budget	Budget	Actual	Difference
Depreciation	4,000	4,000	0
Maintenance	4,800	5,150	-350
Inspections	3,800	3,790	10
Utilities	4,800	4,900	-100
Indirect material	1,200	1,350	-150
Overtime	0	1,125	-1,125
	18,600	20,315	-1,715
Flexible Budget	Budget	Actual	Difference
Depreciation	4,000	4,000	0
Maintenance	5,150	5,150	0
Inspections	3,925	3,790	135
Utilities	4,900	4,900	0
Indirect material	1,350	1,350	0
Overtime	1,125	1,125	0
	20,450	20,315	135

	Static Budget Performance Report

Static Budget		Budget	Actual	Variance
Depreciation		4,000	4,000	0
Maintenance		4,800	5,150	$350 U
Inspections		3,800	3,790	$10 F
Utilities		4,800	4,900	$100 U
Indirect material		1,200	1,350	$150 U
Overtime		0	1,125	$1,125 U
		18,600	20,315	$1,715 U

	Flexible Budget Performance report
Flexible Budget	Budget	Actual	Difference
Depreciation	4,000	4,000	0
Maintenance	5,150	5,150	0
Inspections	3,925	3,790	$135 F
Utilities	4,900	4,900	0
Indirect material	1,350	1,350	0
Overtime	1,125	1,125	0
	20,450	20,315	$135 F

(a) Compare the two budget reports and comment on the differences disclosed between the static budget and flexible budget performance reports.

In static budget for December month, the overall performance is not favourable in comparison to budgeted expenses but in case of Flexible budget for December month
the overall performance is more satisfactory as the actual expenses are less than the budgeted expenses hence, favourable for the business.

(b) If you were to suggest a revision to the budget for December, which cost category seems most in need of revision? Assuming that the fixed cost component of this budgeted cost is already correct, what should the variable cost component be so that the budget equals actual?
In case of static budget almost all the variable components need revision but in flexible budget overall performance is good.

ekkarill92 answered 9 months ago

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