Question

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
Manufacturing Costs	Budget	Actual	Favorable Unfavorable Neither Favorable nor Unfavorable
Variable costs
Direct materials	$55,040	$53,940	$1,100	Favorable
Direct labor	62,720	59,320	3,400	Favorable
Indirect materials	30,720	30,820	100	Unfavorable
Indirect labor	21,760	21,260	500	Favorable
Utilities	16,000	15,890	110	Favorable
Maintenance	11,520	11,650	130	Unfavorable
Total variable	197,760	192,880	4,880	Favorable
Fixed costs
Rent	11,300	11,300	–0–	Neither Favorable nor Unfavorable
Supervision	17,900	17,900	–0–	Neither Favorable nor Unfavorable
Depreciation	5,000	5,000	–0–	Neither Favorable nor Unfavorable
Total fixed	34,200	34,200	–0–	Neither Favorable nor Unfavorable
Total costs	$231,960	$227,080	$4,880	Favorable

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) State the total monthly budgeted cost formula

The formula is $__________________ + variable costs of $__________________ per unit

(b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)

RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended August 31, 2020
						Difference
		Budget		Actual Costs		Favorable Unfavorable Neither Favorable nor Unfavorable
		$		$		$
		$		$		$

Answer 1

	Variable cost per unit = 197760/64000
			3.09
a)	the Formula is
	$34,200	+	variable cost of		$3.09	per unit
b)			Flexible budget
				Budget	Actual	Difference
	Activity level			62,000	62000
	Variable costs
	Direct materials		0.86	53320	53,940	620	U
	direct labor		0.98	60760	59,320	1,440	F
	indirect materials		0.48	29760	30,820	1,060	U
	indirect labor		0.34	21080	21,260	180	U
	Utilities		0.25	15500	15,890	390	U
	Maintenance		0.18	11160	11,650	490	U
	total variable costs		3.09	191580	192,880	1,300	U
	Fixed cost
	Rent			11,300	11,300	0	N
	supervision			17,900	17,900	0	N
	Depreciation			5,000	5,000	0	N
	total fixed cost			34,200	34,200	0	N
	total cost			225,780	227,080	1,300	U