2. Basic flexible budgeting Centron, Inc., has the following budgeted production
ID: 2500086 • Letter: 2
Question
2. Basic flexible budgeting
Centron, Inc., has the following budgeted production costs:
Direct materials $0.40 per unit
Direct labor 1.80 per unit
Variable factory overhead 2.20 per unit
Fixed factory overhead
Supervision $24,000
Maintenance 18,000
Other 12,000
The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
Direct Materials $10,710
Direct Labor 47,175
Variable factory overhead 51,940
Fixed factory overhead
Supervision 24,500
Maintenance 23,700
Other 16,800
Total production costs $174,825
Instructions:
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.
Explanation / Answer
fLEXIBLE Budget
b) Performance report
total cost was better since hsi variance is favourable
(c)
Static budgets are rigid whereas flexible budgets are not hence they can be compared for actual output . Static budgets are not realistic
20,000 units 22,500 units 25,000 units Variable costs: Direct materials @.40 $8,000 $9,000 $10,000 Direct labor @1.80 36,000 40,500 45,000 Variable facotry overhead@2.20 44,000 49,500 55,000 Total variable cost $88,000 $99,000 $110,000 Fixed costs: supervision 24,000 24,000 24,000 Maintenance 18,000 18,000 18,000 Other 12,000 12,000 12,000 Total fixed cost $54,000 $54,000 $54,000 total cost $142,000 $153,000 $164,000Related Questions
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