Question

  

Problem 22-3A (Part Level Submission) 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 Favorable Unfavorable Neither Favorable nor Unfavorable Manufacturing CostsBudget Actual Varlable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Maintenance $53,760 $52,760 $1,000 Favorable 61,440 58,340 3,100 Favorable 25,600 25,700 100 Unfavorable 19,200 18,730 470 Favorable 22,400 22,240 160 Favorable 7,680 7,940 260 Unfavorable Total variable 190,080 185,710 4,370 Favorable Fixed costs Rent Supervision Depreciation 10,500 10,500 -0- Neither Favorable nor Unfavorable 16,10016,100 0- Neither Favorable nor Unfavorable 5,400 5,400 0- Neither Favorable nor Unfavorable 32,000 32,000 -0- Neither Favorable nor Unfavorable Total fixed $222,080 $217,710 $4,370 Favorable Total costs The monthly budget amounts in the report were based on an expected production of 64,000 units per month or 768,000 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 62,000 units were produced (a) &(b) (a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) The formula is (b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.) +variable costs of $ per unit.

Answer 1

SOLUTION

Solution:

Part (a)

The formula is = $32,000 + Variable Cost of $3.01 per unit

Note --- Variable Cost per unit = Total Budgeted Variable Cost / Expected Production Units = 190,080 / 64000 = $2.97

Part (b)

Flexible Budget report is a report prepared by the management to analyze the performance of company with actual result. It is a report prepared by taking actual activity level achieved and standard cost.

So we need to calculate all the variable cost per unit to find out budgeted variable cost in flexible budget report.

Variable Costs:	Budgeted Cost (A)	Budgeted Production Unit (B)	Unit Cost (A/B)
Direct materials	$53,760	64,000	$0.84
Direct labor	$61,400	64,000	$0.96
Indirect materials	$25,600	64,000	$0.4
Indirect labor	$19,200	64,000	$0.3
Utilities	$22,400	64,000	$0.35
Maintenance	$7,680	64,000	$0.12

Flexible Budget report

RATCHET COMPANY Assembly Department Flexible Budget Report for the month ended August 31, 2017
	Budget (Flexible)	Actual Costs	Difference Favorable Unfavorable Neither F nor UF
Actual Production Units	62,000	62,000
Variable Costs:
Direct materials (q*0.88)	$52,080 (62000*0.84)	$52,780	$720	Unfavorable
Direct labor	$59,520 (62000*0.96)	$58,340	-$1,180	Favorable
Indirect materials	$24,800 (62000*0.4)	$25,700	$900	Unfavorable
Indirect labor	$18,600 (62000*0.3)	$18.710	$110	Unfavorable
Utilities	$21,700 (62000*0.35)	$22,240	$540	Unfavorable
Maintenance	$7,440 (62000*0.120)	$7,940	$500	Unfavorable
Total Variable Costs	$184,140	$185,710	$1,570	Unfavorable
Fixed Costs:
Rent	$10,000	$10,000	$0	Neither F nor UF
Supervision	$15,100	$15,100	$0	Neither F nor UF
Depreciation	$5,000	$5,000	$0	Neither F nor UF
Total Fixed	$32,000	$32,000	$0	Neither F nor UF
Total Costs	$216,140	$217,710	$1,570	Unfavorable

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