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

$51,240

$50,140

$1,100

59,780

56,580

3,200

25,620

25,820

200

21,960

21,560

400

18,300

18,170

130

6,100

6,450

350

183,000

178,720

4,280

10,100

10,100

–0–

18,000

18,000

–0–

6,200

6,200

–0–

34,300

34,300

–0–

$217,300

$213,020

$4,280

(a) & (b)

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 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

$51,240

$50,140

$1,100

Favorable    Direct labor

59,780

56,580

3,200

Favorable    Indirect materials

25,620

25,820

200

Unfavorable    Indirect labor

21,960

21,560

400

Favorable    Utilities

18,300

18,170

130

Favorable    Maintenance

6,100

6,450

350

Unfavorable       Total variable

183,000

178,720

4,280

Favorable Fixed costs    Rent

10,100

10,100

–0–

Neither Favorable nor Unfavorable    Supervision

18,000

18,000

–0–

Neither Favorable nor Unfavorable    Depreciation

6,200

6,200

–0–

Neither Favorable nor Unfavorable       Total fixed

34,300

34,300

–0–

Neither Favorable nor Unfavorable Total costs

$217,300

$213,020

$4,280

Favorable
The monthly budget amounts in the report were based on an expected production of 61,000 units per month or 732,000 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 59,000 units were produced.

Explanation / Answer

(a) State the total monthly budgeted cost formula.

Budgeted Cost Formula = Fixed Cost + Variable Cost per Unit

.......................................= $34,300 + $3 per unit i.e ($183,000 / 61,000 units)

(b) Prepare a budget report for August using flexible budget data

*Computed Budgeted Variable Cost per unit

Direct Materials = $51,240 / 61,000 units = $0.84 per unit

Direct Labor = $59,780 / 61,000 units = $0.98 per unit

Indirect Materials = $25,620 / 61,000 units = $0.42 per unit

Indirect Labor = $21,960 / 61,000 units = $0.36 per unit

Utilities = $18,300 / 61,000 units = $0.30 per unit

Maintenance = $6,100 / 61,000 units = $0.10 per unit

RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended August 31, 2017 Budgeted At Actual Cost Difference Favorable F Unfavorable U 59,000 units 59,000 units Variable Costs:      Direct Materials (59,000 x $0.84) $49,560 $50,140 $580 U      Direct Labor (59,000 x $0.98) $57,820 $56,580 ($1,240) F      Indirect Materials (59,000 x $0.42) $24,780 $25,820 $1,040 U      Indirect Labor (59,000 x $0.36) $21,240 $21,560 $320 U      Utilities (59,000 x $0.30) $17,700 $18,170 $470 U      Maintenance (59,000 x $0.10) $5,900 $6,450 $550 U           Total variable $177,000 $178,720 $1,720 U Fixed Costs:      Rent $10,100 $10,100 $0      Supervision $18,000 $18,000 $0      Depreciation $6,200 $6,200 $0           Total Fixed $34,300 $34,300 $0 Total Costs $211,300 $213,020 $1,720 U

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