XYZ, a bicycle manufacturer, uses an activity based costing system for budgeting
ID: 2479099 • Letter: X
Question
XYZ, a bicycle manufacturer, uses an activity based costing system for budgeting. XYZ has identified four cost centers and their associated cost-drivers. The variable and fixed costs for each activity are listed below, along with cost-driver activity.
Activity
Variable Cost
Fixed Cost
Cost Driver Activity
Setup
$14,400
$15,000
12 setups
Processing
$180,000
$21,000
18,000 machine hours
Assembly
$90,000
$12,000
3,000 assembly line hours
Administration
$1,800
$18,000
6,000 units
XYZ has developed a flexible budget for each activity based on the following activity. We assume that the manufacturer sells each unit of its product for $70.
Activity
Activity Level
Cost Driver
(Sales in Units)
5,000
6,000
7,000
Setup
10
12
14
Number of Setups
Processing
15,000
18,000
21,000
Machine Hours
Assembly
2,500
3,000
3,500
Assembly Line Hours
Administration
5,000
6,000
7,000
Units
(1) Given the actual results in the following table, prepare a cost control performance report comparing the flexible budget to actual results for each activity, including flexible-budget variances. Similarly prepare an overall performance report for operating income.
Activity
Actual Activity Level
Actual Cost
(Sales in Units)
6,500
(Sales in Dollars)
$430,000
Setup
13
$28,000
Processing
19,000
$199,000
Assembly
3,200
$110,000
Administration
6,500
$22,800
Activity
Variable Cost
Fixed Cost
Cost Driver Activity
Setup
$14,400
$15,000
12 setups
Processing
$180,000
$21,000
18,000 machine hours
Assembly
$90,000
$12,000
3,000 assembly line hours
Administration
$1,800
$18,000
6,000 units
Explanation / Answer
Flexible Budget Activity Actual Activity Level Actual Cost Flexible Budget Variance Sale in units 6,500 (Sales in Dollars) $430000 Set up 13 28,000 30600 2,600 F Processing 19,000 199,000 211,000 12,000 F Assembly 3,200 110,000 108,000 2,000 U Administration 6,500 22,800 19,950 2,850 U Total Cost 359,800 369,550 9,750 F Overall perfornance report Actual Flexible Varaince Revunue 430,000 455,000 25,000 U Total Expenses 359,800 369,550 9,750 F Operating Profit 70,200 85,450 15,250 U
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