P10-3B Hardesty
Company uses budgets in controlling costs. The May 2014 budget report for the
company's Packaging Department is as follows.
HARDESTY COMPANY
Budget Report
Packaging Department
For the Month Ended May 31, 2014
|
Manufacturing Costs
|
Budget
|
Actual
|
Difference
|
||
|
Favorable - Fav
Unfavorable - Unf |
|||||
|
Variable costs
|
|
|
|
|
|
|
Direct materials
|
$40,000
|
$41,000
|
$1,000
|
Unf
|
$0.80
|
|
Direct labor
|
45,000
|
47,300
|
$2,300
|
Unf
|
$0.90
|
|
Indirect materials
|
15,000
|
15,200
|
$200
|
Unf
|
$0.30
|
|
Indirect labor
|
12,500
|
13,000
|
$500
|
Unf
|
$0.25
|
|
Utilities
|
10,000
|
9,600
|
-400
|
Fav
|
$0.20
|
|
Maintenance
|
7,500
|
8,000
|
500
|
Unf
|
$0.15
|
|
Total variable costs
|
130,000
|
134,100
|
4,100
|
Unf
|
|
|
|
|||||
|
Fixed costs
|
|||||
|
Rent
|
10,000
|
10,000
|
$0
|
|
|
|
Supervision
|
7,000
|
7,000
|
$0
|
|
|
|
Depreciation
|
4,000
|
4,000
|
$0
|
|
|
|
Total fixed costs
|
21,000
|
21,000
|
0
|
|
|
|
Total costs
|
$151,000
|
$155,100
|
$4,100
|
Unf
|
|
The
monthly budget amounts in the report were based on an expected production of 50,000
units per month
or 600,000 units per year. The company president was displeased with the
department manager's
performance. The department manager, who thought he had done a good job, could
not understand the unfavorable results. In May, 55,000 units were produced.
Instructions
a. State
the total budgeted cost formula.
b. Prepare a
budget report for May using flexible budget data. Why does this report provide
a better basis for evaluating performance than the report based on static
budget data?
c. In June,
40,000 units were produced. Prepare the budget report using flexible budget
data, assuming (1) each variable cost was 20% less in June that its actual cost
in May, and (2) fixed costs were the same in June as in May.
TUTORIAL PREVIEW
(b) Prepare
a budget report for May using flexible budget data. Why does this report
provide a better basis for evaluating performance than the report based on
static budget data?
HARDESTY COMPANY
Packaging Department
Budget Report (Flexible)
For the Month Ended May 31, 2014
|
|
Budgeted at
|
Actual Costs
|
Difference
|
|
|
Units
|
55,000
|
55,000
|
Favorable - Fav
Unfavorable - Unf |
|
|
Variable costs*
|
units
|
units
|
||
|
Direct materials ($0.80 x 55,000)
|
$44,000
|
$41,000
|
$3,000
|
Fav
|
|
Direct labor ($0.90 x 55,000)
|
$49,500
|
47,300
|
$2,200
|
Fav
|
File name: P10-3B Hardesty.xls File type: xls-template PRICE: $8
