RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 3

Question

RATCHET COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2017

Difference

Manufacturing Costs

Budget

Actual

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

$49,600

$48,500

$1,100

57,040

54,040

3,000

27,280

27,580

300

22,320

21,910

410

15,500

15,390

110

7,440

7,630

190

179,180

175,050

4,130

11,500

11,500

–0–

17,100

17,100

–0–

7,100

7,100

–0–

35,700

35,700

–0–

$214,880

$210,750

$4,130

RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended August 31, 2017

Difference

Budget

Actual Costs

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended September 30, 2017

Difference

Budget

Actual Costs

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

Ratchet Company uses budgets in controlling costs. The August 2017 budget report for the company’s Assembling Department is as follows.

RATCHET COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2017

Difference

Manufacturing Costs

Budget

Actual

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

Variable costs    Direct materials

$49,600

$48,500

$1,100

Favorable    Direct labor

57,040

54,040

3,000

Favorable    Indirect materials

27,280

27,580

300

Unfavorable    Indirect labor

22,320

21,910

410

Favorable    Utilities

15,500

15,390

110

Favorable    Maintenance

7,440

7,630

190

Unfavorable       Total variable

179,180

175,050

4,130

Favorable Fixed costs    Rent

11,500

11,500

–0–

Neither Favorable nor Unfavorable    Supervision

17,100

17,100

–0–

Neither Favorable nor Unfavorable    Depreciation

7,100

7,100

–0–

Neither Favorable nor Unfavorable       Total fixed

35,700

35,700

–0–

Neither Favorable nor Unfavorable Total costs

$214,880

$210,750

$4,130

Favorable
The monthly budget amounts in the report were based on an expected production of 62,000 units per month or 744,000 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 60,000 units were produced. (a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.)
The formula is = $

+ variable costs of $

per unit.
(b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)

RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended August 31, 2017

Difference

Budget

Actual Costs

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

$

$

$

$

$

$

In September, 66,000 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. (List variable costs before fixed costs.)

RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended September 30, 2017

Difference

Budget

Actual Costs

Favorable
Unfavorable
Neither Favorable
nor Unfavorable

$

$

$

$

$

$

Explanation / Answer

(a)

Cost formula = Fixed cost + variable cost per unit

Cost formula = $35,700 + $2.89 per unit ($179,180 / 62,000 units)

(b)

1,650 UF

(c)

Particulars Budgeted at 60,000 units Actual costs at 60,000 units Difference (F/UF) Variable costs: Direct materials (49,600 / 62,000)*60,000 48000 48500 500 UF Direct labor (57,040 / 62,000)*60,000 55200 54040 1,160 F Indirect materials (27,280 / 62,000)*60,000 26400 27580 1,180 UF Indirect labor (22,320/62000)*60,000 21600 21910 310 UF Utilities (15,500 / 62,000)*60,000 15000 15390 6,910 UF Maintainence (7,440 / 62,000)*60,000 7200 7630 8,190 UF Total variable costs 173400 175050 Fixed costs: Rent 11500 11500 $0 None Supervision 17100 17100 $0 None Depreciation 7100 7100 $0 None Total fixed costs 35700 35700 $0 None Total costs 209100 210750

1,650 UF

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