1. P26-A1 Basic flexible budgeting (L.O. 2) Centron, Inc., has the following bud
ID: 2361759 • Letter: 1
Question
1. P26-A1 Basic flexible budgeting (L.O. 2) Centron, Inc., has the following budgeted production costs: Direct materials $0.40 per unit Direct labor 1.80 per unit Variable factory overhead 2.20 per unit Fixed factory overhead Supervision $24,000 Maintenance 18,000 Other 12,000 Instructions: a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity. b. Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer. c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.Explanation / Answer
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity. Please rate it first flexible budget for 20,000 Direct materials 20000 x 0.4 = $8000 Direct labor 20000 x 1.8 = $36000 Variable factory overhead 20000 x 2.2 = $44000 ------------------------------------------------- Total Variable cost = $88000 Add:Fixed factory overhead Supervision $24,000 Maintenance 18,000 Other 12,000 $54000 --------------------------------------------------- Total cost = $142000 flexible budget for 22,500 Direct materials 22500 x 0.4 = $9000 Direct labor 22500 x 1.8 = $40500 Variable factory overhead 22500 x 2.2 = $49500 ------------------------------------------------- Total Variable cost = $99000 Add:Fixed factory overhead Supervision $24,000 Maintenance 18,000 Other 12,000 $54000 --------------------------------------------------- Total cost = $153000 flexible budget for 25,000 Direct materials 25,000 x 0.4 = $10000 Direct labor 25,000 x 1.8 = $45000 Variable factory overhead 25,000 x 2.2 = $55000 ------------------------------------------------- Total Variable cost = $110000 Add:Fixed factory overhead Supervision $24,000 Maintenance 18,000 Other 12,000 $54000 --------------------------------------------------- Total cost = $164000 b.)Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer. The actuals are required to compare and prepare the report you asked. c.)Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance. The flexible budgets helps in understanding and estimating the possible sales at the given production and the profit acheivable This is because it deifferentiates between the variable and fixed costs and use them for budgeting.
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