P10-3A Hill Company uses budgets in controlling
costs. The August 2014 budget report for the company's Assembling Department is
as follows.
HILL COMPANY
Budget
Report
Assembling
Department
For
the Month Ended August 31, 2014
|
Manufacturing Costs
|
Budget
|
Actual
|
Difference
|
||
|
Favorable - Fav
Unfavorable - Unf |
|||||
|
Variable costs
|
|
|
|
|
|
|
Direct materials
|
$48,000
|
$47,000
|
($1,000)
|
Fav
|
$0.80
|
|
Direct labor
|
54,000
|
51,200
|
($2,800)
|
Fav
|
$0.90
|
|
Indirect materials
|
24,000
|
24,200
|
$200
|
Unf
|
$0.40
|
|
Indirect labor
|
18,000
|
17,500
|
($500)
|
Fav
|
$0.30
|
|
Utilities
|
15,000
|
14,900
|
-100
|
Fav
|
$0.25
|
|
Maintenance
|
6,000
|
6,200
|
200
|
Unf
|
$0.10
|
|
Total variable costs
|
165,000
|
161,000
|
-4,000
|
Fav
|
|
|
|
|||||
|
Fixed costs
|
|||||
|
Rent
|
12,000
|
12,000
|
$0
|
Unf
|
|
|
Supervision
|
17,000
|
17,000
|
$0
|
Unf
|
|
|
Depreciation
|
6,000
|
6,000
|
$0
|
Unf
|
|
|
Total fixed costs
|
35,000
|
35,000
|
0
|
Unf
|
|
|
Total costs
|
$200,000
|
$196,000
|
($4,000)
|
Fav
|
|
The monthly budget amounts in the report were based
on an expected production of 60,000 units per month or720,000 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.
Instructions
(a) State the total monthly budgeted cost formula.
(b) Prepare a budget report for August 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 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.
HILL COMPANY
Assembling
Department
Flexible
Budget Report
For
the Month Ended August 31, 2014
|
|
Budgeted at
|
Actual Costs
|
Difference
|
|
|
Units
|
58,000
|
58,000
|
Favorable - Fav
Unfavorable - Unf |
|
|
Variable costs*
|
units
|
units
|
||
|
Direct materials ($0.80 x 58,000)
|
$46,400
|
$47,000
|
$600
|
Unf
|
|
Direct labor ($0.90 x 58,000)
|
$52,200
|
51,200
|
1,000
|
Fav
|
File name: P10-3A Hill Company.xls File type: xls-template PRICE: $8
