Question

Problem 23-03A a, b1, c Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the company's Assembling Department is as follows. RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2020 Difference Favorable Unfavorable Neither Favorable nor Unfavorable Manufacturing Costs Budget Actual Variable costs Direct materials $48,380 $47,280 $1,100 Favorable Direct labor 57,820 54,520 3,300 Favorable Indirect materials 26,060 100 Unfavorable 25,960 Indirect labor 450 Favorable 21,240 20,790 140 Favorable Utilities 20,650 20,510 Maintenance 7,080 7,190 110 Unfavorable Total variable 181,130 176,350 4,780 Favorable Fixed costs -0- Neither Favorable nor Unfavorable Rent 12,100 12,100 -0- Neither Favorable nor Unfavorable Supervision 19,000 19,000 -0- Neither Favorable nor Unfavorable Depreciation 7,300 7,300 38,400 Total fixed 38,400 -0- Neither Favorable nor Unfavorable $219,530 $214,750 $4,780 Favorable Total costs The monthly budget amounts in the report were based on an expected production of 59,000 units per month or 708,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August because only 57,000 units were produced. (a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) The formula is 2$ + variable costs of $ per unit. (b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)

Answer 1

Answer a.

Planning Budget:

Units produced = 59,000

Direct materials per unit = $48,380 / 59,000
Direct materials per unit = $0.82

Direct labor per unit = $57,820 / 59,000
Direct labor per unit = $0.98

Indirect materials per unit = $25,960 / 59,000
Indirect materials per unit = $0.44

Indirect labor per unit = $21,240 / 59,000
Indirect labor per unit = $0.36

Utilities per unit = $20,650 / 59,000
Utilities per unit = $0.35

Maintenance per unit = $7,080 / 59,000
Maintenance per unit = $0.12

Variable Cost per unit = Direct materials per unit + Direct labor per unit + Indirect materials per unit + Indirect labor per unit + Utilities per unit + Maintenance per unit
Variable Cost per unit = $0.82 + $0.98 + $0.44 + $0.36 + $0.35 + $0.12
Variable Cost per unit = $3.07

Fixed Costs = Rent + Supervision + Depreciation
Fixed Costs = $12,100 + $19,000 + $7,300
Fixed Costs = $38,400

Total Cost = $38,400 + Variable Costs of $3.07 per unit

Answer b.

RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended August 31, 2020 Difference Budget Actual 57000 Units 57000 Variable Costs Direct Materials Direct Labor Indirect Materials Unfavorable 46740 47280 540 Favorable 55860 545 20 1340 Unfavorable 25080 26060 980 Indirect Labor Unfavorable 20520 20790 270 Utilities Unfavorable 19950 20510 560 Unfavorable Unfavorable Maintenance 6840 7190 350 Total Variable Costs Fixed Costs Rent Supervision 174990 176350 1360 12100 Neither Favorable Nor Unfavorable 12100 Neither Favorable Nor Unfavorable 19000 19000 Neither Favora ble Nor Unfavorable Depreciation Total Fixed Costs 7300 7300 38400 38400 Neither Favorable Nor Unfavorable Total Costs Unfavorable 214750 213390 1360

Answer c.

RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended September 30, 2020 Budget Actual Difference Units 63000 63000 Variable Costs Direct Materia ls Unfavorable 51660 52008 348 Direct Labor Indirect Materials Indirect Labor Favorable 61740 59972 1768 Unfavorable 27720 28666 946 Unfavorable 22680 22869 189 Utilities 511 Unfavorable 22050 22561 Maintenance Total Variable Costs Fixed Costs 7560 Unfavorable 7909 349 Unfavorable 193410 193985 575 12100 Neither Favorable Nor Unfavorable Rent 12100 Supervision Neither Favorable Nor Unfavorable 19000 19000 7300 7300 Neither Favorable Nor Unfavorable Depreciation Total Fixed Costs Total Costs 38400 Neither Favorable Nor Unfavorable 38400 Unfavorable 231810 232385 575