Question

Muskrat Medical Equipment Company makes a blood pressure measuring kit. Jason McCoy is the production manager. The production department's static budget and actual results for 2019 follow Actual Results Static Budget 60,000 kits 525,000 450.000 120,000 1,095,000 525,000 Production in units Direct materials Direct labor Variable manu facturing overhead Total variable costs 64,000 kits $655,000 464,000 135,000 1,254,000 Fixed manufacturing ove rhead 512,500 $1,766,500 $1,620,000 Total manufactu ring cost Required a. Convert the static budget into a flexible budget. b. Calculate the variances. Complete this question by entering your answers in the tabs below. Required A Required B Convert the static budget into a flexible budget. (Do not round intermediate calculations.) Flexible Budget 64,000 Kits Production in units Direct materials Direct labor Variable manufacturing overhead Total variable costs $ 0 Fixed manufacturing overhead Total manufacturing costs $ 0

Answer 1

Ans. A		Flexible budget
	Production in units	64000
	Direct Materials	$560,000
	Direct Labor	$480,000
	Variable Manufacturing Overhead	$128,000
	Total variable costs	$1,168,000
	Fixed manufacturing overhead	$525,000
	Total manufacturing costs	$1,693,000
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as static budget.
	*Calculations for variable costs in Flexible budget:
	Direct Materials	$525,000 / 60,000 * 64,000
	Direct Labor	$450,000 / 60,000 * 64,000
	Variable Manufacturing Overhead	$120,000 / 60,000 * 64,000
Ans. B		Actual results	Flexible budget	Variances	Fav./ Unf.
	Production in units	64000	64000
	Direct Materials	$655,000	$560,000	$95,000	U
	Direct Labor	$464,000	$480,000	$16,000	F
	Variable Manufacturing Overhead	$135,000	$128,000	$7,000	U
	Total variable costs	$1,254,000	$1,168,000	$86,000	U
	Fixed manufacturing overhead	$512,500	$525,000	$12,500	F
	Total manufacturing costs	$1,766,500	$1,693,000	$73,500	U
	Flexible budget variance   =   Actual results - Flexible budget
	*Increase in revenue or net operating income and decrease in expenses from flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income and increase in expenses from flexible budget to actual results =   Unfavorable.