P11-52B Yaeger Company uses budgets in controlling costs. The company based the

Question

P11-52B Yaeger Company uses budgets in controlling costs. The company based the monthly budget amounts in the (SO 1, 2, 3) report on an expected production of 60,000 units per month or 720,000 units per year. The assembling department manager is Prepare flexible budget pleased with the report and expects a raise. The company president, however, is unhappy with the results for August, because reports for varying only 58,000 units were produced. The August 2016 budget report for the company's assembling department is as follows: situations using the total budgeted cost formula. YAEGER COMPANY Budget Report Assembling Department Month Ended August 31, 2016 Difference: Favourable (F)/ Manufacturing Costs Variable costs Budget Actual Unfavourable Direct materials Direct labour Indirect materials Indirect labour Utilities Maintenance S 48,000 54,000 24,000 18,000 15,000 9,000 168,000 $47,000 51,300 24,200 17,500 14,900 9,200 164,100 $1,000 F 2,700 F 200 U 500 F 100 F 00 U 3,900 F Total variable costs (continued) 494 CHAPTER 11 Budgetary Control and Responsibility Accounting YAEGER COMPANY Budget Report Assembling Department Month Ended August 31, 2016 (continued) Fixed costs 12,000 17,000 7,000 36,000 $204,000 12,000 17,000 7,000 36,000 $200,100 0 Rent Supervisiorn Depreciation 0 0 Total fixed costs Total costs $3,900 F 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 evaluat (b) Budget S198,400 ing performance than the report based on static budget data? (c) Budget $215,200 (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.

Explanation / Answer

1)Budgeted variable cost per unit :168000/60000 = $ 2.8 per unit

cost formula = x *variable cost per unit+fixed cost

                     = 2.8x + 36000

where x is the number of units sold

2)

162400

Fexible budget report is more helpful in determining the variance from actual cost as it calculates the satandard cost for actual output and not budgeted output .

c)

199183

Flexible Budget Variable cost Direct material [48000*58000/60000] 46400 Direct labor [54000*58000/60000] 52200 Indirect material [24000*58000/60000] 23200 Indirect labor [ 18000*58000/60000] 17400 Utilites [15000*58000/60000] 14500 Maintenace [9000*58000/60000] 8700 Total variable cost

162400

Fixed cost Rent 12000 Supervision 17000 depreciation 7000 Total fixed cost 36000 Total cost 198400

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