Problem 10-3A (Part Level Submission) Ratchet Company uses budgets in controllin

Question

Problem 10-3A (Part Level Submission) Ratchet Company uses budgets in controlling costs. The August 2017 budget report for the company's Assembling Department is as follows RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2017 Difference Favorable Unfavorable Neither Favorable nor Unfavorable Manufacturing Costs Budget Actual Variable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Maintenance $53,680 $52,680 $1,000 Favorable 54,900 52,100 2,800 Favorable 28,060 28,160 100 Unfavorable 19,520 19,060 460 Favorable 5,250 15,060 190 Favorable 12,200 12,300 100 Unfavorable Total variable 183,610 179,360 4,250 Favorable Fixed costs Rent Supervision Depreciation 12,600 12,600 0- Neither Favorable nor Unfavorable 18,600 18,600 0 Neither Favorable nor Unfavorable 7,800 7,800-0 Neither Favorable nor Unfavorable 39,000 39,000 0-Neither Favorable nor Unfavorable Total fixed

Explanation / Answer

Solution:

Part (a)

The formula is = $39,000 + Variable Cost of $3.01 per unit

Note --- Variable Cost per unit = Total Budgeted Variable Cost / Expected Production Units = 183,610 / 61000 = $3.01

Part (b)

Flexible Budget report is a report prepared by the management to analyze the performance of company with actual result. It is a report prepared by taking actual activity level achieved and standard cost.

So we need to calculate all the variable cost per unit to find out budgeted variable cost in flexible budget report.

Variable Costs:

Budgeted Cost

(A)

Budgeted Production Unit

(B)

Unit Cost

(A/B)

Direct materials

$53,680

61,000

$0.88

Direct labor

$54,900

61,000

$0.90

Indirect materials

$28,060

61,000

$0.46

Indirect labor

$19,520

61,000

$0.32

Utilities

$15,250

61,000

$0.25

Maintenance

$12,200

61,000

$0.20

Flexible Budget report

RATCHET COMPANY Assembly Department Flexible Budget Report for the month ended August 31, 2017

Budget (Flexible)

Actual Costs

Difference Favorable Unfavorable Neither F nor UF

Actual Production Units

59,000

59,000

Variable Costs:

Direct materials (q*0.88)

$51,920

(59000*0.88)

$52,680

$760

Unfavorable

Direct labor

$53,100

(59000*0.90)

$52,100

-$1,000

Favorable

Indirect materials

$27,140

(59000*0.46)

$28,160

$1,020

Unfavorable

Indirect labor

$18,880

(59000*0.32)

$19,060

$180

Unfavorable

Utilities

$14,750

(59000*0.25)

$15,060

$310

Unfavorable

Maintenance

$11,800

(59000*0.20)

$12,300

$500

Unfavorable

Total Variable Costs

$177,590

$179,360

$1,770

Unfavorable

Fixed Costs:

Rent

$12,600

$12,600

$0

Neither F nor UF

Supervision

$18,600

$18,600

$0

Neither F nor UF

Depreciation

$7,800

$7,800

$0

Neither F nor UF

Total Fixed

$39,000

$39,000

$0

Neither F nor UF

Total Costs

$216,590

$218,360

$1,770

Unfavorable

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Variable Costs:

Budgeted Cost

(A)

Budgeted Production Unit

(B)

Unit Cost

(A/B)

Direct materials

$53,680

61,000

$0.88

Direct labor

$54,900

61,000

$0.90

Indirect materials

$28,060

61,000

$0.46

Indirect labor

$19,520

61,000

$0.32

Utilities

$15,250

61,000

$0.25

Maintenance

$12,200

61,000

$0.20

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