Question

Spooky Corporation had planned to produce 50,000 units of product during the first quarter of the current year. The company prepared the following budget on May 1:

	Budgeted (50,000 units)
Variable costs:
Direct materials used	$	36,000
Direct labor		45,000
Variable overhead		22,500
Fixed costs:
Manufacturing overhead		58,500
Total manufacturing costs	$	162,000

During the first quarter, Spooky produced 60,000 units and incurred total manufacturing costs of $184,000.

1. Which of the following amounts should not be included in Spooky's flexible budget at a 60,000-unit level?

Multiple Choice

• Variable overhead, $27,000

• Fixed manufacturing overhead, $70,200

• Direct materials used, $43,200

• Direct labor, $54,000

2. A performance report for Spooky's first quarter of operations using a flexible budget approach would show:

Multiple Choice

• Total costs per the flexible budget of $194,400.

• Actual costs over budget by $1,300.

• Actual costs over budget by $11,700.

• Actual costs over budget by $15,150.

Answer 1

	Flexible budget
	(60,000 units)
Direct materials used	43200	=36000/50000*60000
Direct labor	54000	=45000/50000*60000
Variable overhead	27000	=22500/50000*60000
Fixed Manufacturing overhead	58500
Total	182700

1

Fixed manufacturing overhead, $70,200 should not be included in Spooky's flexible budget at a 60,000-unit level.

Fixed manufacturing overhead in flexible budget at a 60,000-unit level is $58500

Option B is correct

2

Costs over budget = 184000-182700 = $1300

Actual costs over budget by $1,300.

Option B is correct