7. Gordon Corporation bases its budgets on the activity measure customers served

Question

7. Gordon Corporation bases its budgets on the activity measure customers served. During April, the company planned to serve 25,000 customers, but actually served 29,000 customers. The company has provided the following data concerning the formulas it uses in its budgeting:

Fixed cost

per month

Variable cost

per customer

Revenue

  

$3.10

Wages and salaries

$23,700

$0.80

Supplies

$0

$0.60

Insurance

$5,300

$0.00

Miscellaneous expense

$3,200

$0.20

Required: Prepare Gordon’s flexible budget for April based on the actual level of activity.

8. Answer these questions:

What department budget is the first budget created each year? Why?

What budgets are created next (in the correct order)? Why in this order?

Fixed cost

per month

Variable cost

per customer

Revenue

  

$3.10

Wages and salaries

$23,700

$0.80

Supplies

$0

$0.60

Insurance

$5,300

$0.00

Miscellaneous expense

$3,200

$0.20

Explanation / Answer

Flexible Budget

8)The sales budget is prepared first because all other budgets rely on its information.

the bugets next in order are production budget, materials budget, direct labor budget and manufacturing budget.

Next are selling and administrative budget , capital acquistion budget followed by cash budget.

This sequence since after sales comes cost of goods sold , selling and administrative expenses.The results of all these budgets flow into the budgeted income statement , budgeted statement of cash flows and finally into the baalnce sheet.

Revenues 29,000*3.10 $89,900 Less:Expenses Wages & salaries (23,700 + 29,000*.80) $(46,900) Supplies(29,000*.6) $(17,400) Insurance $5,300 Miscellaneous expense ($3,200+29,000*.20) $(9,000) Net income $11,300

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