Question

RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2017
			Difference
Manufacturing Costs	Budget	Actual	Favorable Unfavorable Neither Favorable nor Unfavorable
Variable costs
Direct materials	$53,680	$52,580	$1,100	Favorable
Direct labor	59,780	56,480	3,300	Favorable
Indirect materials	29,280	29,380	100	Unfavorable
Indirect labor	19,520	19,060	460	Favorable
Utilities	15,250	15,140	110	Favorable
Maintenance	12,200	12,530	330	Unfavorable
Total variable	189,710	185,170	4,540	Favorable
Fixed costs
Rent	11,700	11,700	–0–	Neither Favorable nor Unfavorable
Supervision	18,500	18,500	–0–	Neither Favorable nor Unfavorable
Depreciation	7,300	7,300	–0–	Neither Favorable nor Unfavorable
Total fixed	37,500	37,500	–0–	Neither Favorable nor Unfavorable
Total costs	$227,210	$222,670	$4,540	Favorable

The monthly budget amounts in the report were based on an expected production of 61,000 units per month or 732,000 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 59,000 units were produced.

In September, 65,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August. (List variable costs before fixed costs.)

Answer 1

Prepare the budget report using flexible budget

	Flexible Budget	Actual	Differences
Variable costs
Direct material	0.88*65000 = 57200	57838	638 U
Direct labor	0.98*65000 = 63700	62128	1572 F
Indirect materials	0.48*65000 = 31200	32318	1118 U
Indirect labor	0.32*65000 = 20800	20966	166 U
Utilities	0.25*65000 = 16250	16654	404 U
Maintenance	0.20*65000 = 13000	13783	783 U
Total variable cost	202150	203687	1537 U
Fixed cost
Rent	11700	11700	0 None
Supervision	18500	18500	0 None
Depreciation	7300	7300	0 None
Total fixed cost	37500	37500	0 None
Total Cost	239650	241187	1537 U