Problem 22-3A (part level submission) HILL COMPANY Budget Report Assembling Depa

Question

Problem 22-3A (part level submission)

HILL COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2014

Difference

Manufacturing Costs

Budget

Actual

Favorable (F)
Unfavorable (U)
Neither Favorable
nor Unfavorable (N)

$51,850

$50,850

$1,000

55,510

52,430

3,080

25,010

25,110

100

20,740

20,330

410

16,470

16,360

110

7,320

7,540

220

176,900

172,620

4,280

11,250

11,250

–0–

17,370

17,370

–0–

5,010

5,010

–0–

33,630

33,630

–0–

$210,530

$206,250

$4,280

(a)

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

Problem 22-3A (part level submission)

Hill Company uses budgets in controlling costs. The August 2014 budget report for the company’s Assembling Department is as follows.

HILL COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2014

Difference

Manufacturing Costs

Budget

Actual

Favorable (F)
Unfavorable (U)
Neither Favorable
nor Unfavorable (N)

Variable costs    Direct materials

$51,850

$50,850

$1,000

F    Direct labor

55,510

52,430

3,080

F    Indirect materials

25,010

25,110

100

U    Indirect labor

20,740

20,330

410

F    Utilities

16,470

16,360

110

F    Maintenance

7,320

7,540

220

U       Total variable

176,900

172,620

4,280

F Fixed costs    Rent

11,250

11,250

–0–

N    Supervision

17,370

17,370

–0–

N    Depreciation

5,010

5,010

–0–

N       Total fixed

33,630

33,630

–0–

N Total costs

$210,530

$206,250

$4,280

F
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.

Explanation / Answer

Solution:

HILL COMPANY Budget Report Assembling Department For the Month Ended August 31, 2014 Difference Favorable (F) Manufacturing Costs Budget Actual Unfavorable (U) Units 59,000 59,000 Neither Favorable nor Unfavorable (N) Variable costs    Direct materials (59,000 x $0.85) $50,150 $55,935 $5,785 F    Direct labor (59,000 x $0.91) $53,690 $57,673 $3,983 F    Indirect materials (59,000 x $0.41) $24,190 $27,621 $3,431 F    Indirect labor (59,000 x $0.34) $20,060 $22,363 $2,303 F    Utilities (59,000 x $0.27) $15,930 $17,996 $2,066 F    Maintenance (59,000 x $0.12) $7,080 $8,294 $1,214 F       Total variable (59,000 x $2.90) $171,100 $189,882 $18,782 F Fixed costs    Rent 11,250 11,250 –0– N    Supervision 17,370 17,370 –0– N    Depreciation 5,010 5,010 –0– N       Total fixed 33,630 33,630 –0– N Total costs $204,730 $223,512 $18,782 F State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) he formula = $33,360 + variable costs of $ 2.90 per unit Note: that the per unit variable costs are computed by taking the budget amount at 61,000 units and dividing it by 61,000. For example, direct materials per unit is therefore $51,850 / 61,000 units or $0.85 per unit. This report provides a better basis for evaluating performance because the budget is based on the level of activity actually achieved. The manager should be criticized because every variable cost was over budget except for direct labor. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The manager's performance was slightly better in September than it was in August. However, each variable cost was slightly over budget again except for direct labor. Note that actual variable costs in September were 10% higher than the actual variable costs in August. Therefore to find the actual variable costs in September, the actual variable costs in August must be increased by 10% as follows: August (Actual) times September (Actual)    Direct materials $50,850 110% $55,935    Direct labor 52,430 110% $57,673    Indirect materials 25,110 110% $27,621    Indirect labor 20,330 110% $22,363    Utilities 16,360 110% $17,996    Maintenance 7,540 110% $8,294 $172,620 $189,882

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