Question

Pronghorn Company uses budgets in controlling costs. The August 2017 budget report for the company’s Assembling Department is as follows. PRONGHORN COMPANY Budget Report Assembling Department For the Month Ended August 31, 2017 Difference Manufacturing Costs Budget Actual Favorable Unfavorable Variable costs    Direct materials $50,740 $49,740 $1,000 Favorable    Direct labor 54,280 51,480 2,800 Favorable    Indirect materials 25,960 26,260 300 Unfavorable    Indirect labor 22,420 21,940 480 Favorable    Utilities 14,750 14,580 170 Favorable    Maintenance 5,900 6,120 220 Unfavorable       Total variable 174,050 170,120 3,930 Favorable Fixed costs    Rent 10,000 10,000 –0–    Supervision 18,200 18,200 –0–    Depreciation 5,200 5,200 –0–       Total fixed 33,400 33,400 –0– Total costs $207,450 $203,520 $3,930 Favorable 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 $ + variable costs of $ per unit.

Answer 1

The Formula is	$       33,400	+ variable cost of	$       2.95	per unit
Workings:
Total Fixed cost	=	$ 33,400
Variable cost per unit	=	$174050 / 59000 units
	=	$       2.95	per unit