(SO 1, 2, 3) State the total budgeted cost formula, and prepare flexible budget

Question

(SO 1, 2, 3) State the total budgeted cost formula, and prepare flexible budget reports for two time periods P11-40A department is as follows Laesecke Company uses budgets to control costs. The May 2016 budget report for the company's packaging LAESECKE COMPANY Budget Report Packaging Department Month Ended May 31, 2016 Difference: Favourable (F)/ Unfavourable (U) Manufacturing Costs Variable costs Budget Actual Direct materials Direct labour Indirect materials Indirect labour Utilities Maintenance 37,500 45,000 15,000 12,500 10,000 5,000 125,000 $ 38,000 47,000 15,200 13,000 9,600 5,200 128,000 500 U 2,000 U 200 U 500 U 400 F 200 U 3,000 U Total variable costs Fixed costs Rent 10,000 7,000 5,000 22,000 $147,000 10,000 7,000 5,000 22,000 $150,000 upervision Depreciation Total fixed costs 0 Total costs $3,000 U 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 unhappy with the department manager's performance. The department man ager could not understand the unfavourable 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 (b) Budget $159,500 performance than the report based on static budget data? (c) Budget $122,000; (c) In June, 40,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable Actual $124,400 cost was 20% less in June than its actual cost in May, and (2) fixed costs were the same in the month of June as in May.

Explanation / Answer

Requirement a Total budgeted cost formula =Fixed cost + Variable cost per unit Requirement b Laesecke Company Budget Report Packaging Department For the month ended May 31, 2016 -----Flexible Budget---- ----Flexible Budget at ---- Actual Variable amount per unit Total fixed costs 50000 55000 55000 Difference Variable costs Direct Materials 0.75 37500 41250 38000 3250 Favourable Direct labor 0.9 45000 49500 47000 2500 Favourable Indirect materials 0.3 15000 16500 15200 1300 Favourable Indirect labor 0.25 12500 13750 13000 750 Favourable Utilities 0.2 10000 11000 9600 1400 Favourable Maintenance 0.1 5000 5500 5200 300 Favourable Total Variable Costs 2.5 125000 137500 128000 9500 Favourable Fixed costs Rent 10000 10000 10000 10000 0 Supervision 7000 7000 7000 7000 0 Depreciation 5000 5000 5000 5000 0 Total Fixed costs 22000 22000 22000 22000 0 Total costs 147000 159500 150000 9500 Favourable Flexible budget provide better basis for evaluating performance than report based on static budget because actual results can be compared at same operating level in flexible budget. In short it implies that static budget may have differnet production or activity level which can not be compared directly with actual results while flexible budget is comparable with actual results because it is prepared at same level of production or activity actually achieved in terms of units. Requirement c Laesecke Company Budget Report Packaging Department For the month ended May 31, 2016 -----Flexible Budget---- ----Flexible Budget at ---- Actual Variable amount per unit Total fixed costs 50000 40000 40000 Difference Variable costs Direct Materials 0.75 37500 30000 30400 -400 Unfavourable Direct labor 0.9 45000 36000 37600 -1600 Unfavourable Indirect materials 0.3 15000 12000 12160 -160 Unfavourable Indirect labor 0.25 12500 10000 10400 -400 Unfavourable Utilities 0.2 10000 8000 7680 320 Unfavourable Maintenance 0.1 5000 4000 4160 -160 Unfavourable Total Variable Costs 2.5 125000 100000 102400 -2400 Unfavourable Fixed costs Rent 10000 10000 10000 10000 0 Supervision 7000 7000 7000 7000 0 Depreciation 5000 5000 5000 5000 0 Total Fixed costs 22000 22000 22000 22000 0 Total costs 147000 122000 124400 -2400 Unfavourable

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