# Exercise Flexible Budgets

722 Words3 Pages
ACC 3515 – MANAGEMENT ACCOUNTING
SEM 1 2014/2015

FLEXIBLE BUDGETING

1. The following overhead data are for a department in a large company.

Actual Costs Incurred
Static Budget

Activity level (in units)
200
220

Variable costs:

Supplies
\$4,050
\$4,906

Power
\$1,690
\$1,892

Fixed costs:

\$6,240
\$6,200

Depreciation
\$6,280
\$6,200

Required: Prepare a report that would be useful in assessing how well costs were controlled in this department.

2. Hempstead Corporation plans to manufacture 8,000 units over the next month at the following costs: direct materials, \$480,000; direct labor, \$60,000; variable manufacturing overhead, \$150,000; straight-line depreciation, \$24,000, and other fixed manufacturing
The manager believed that miles driven was the most appropriate cost driver for studying gasoline and oil expense. In contrast, the number of vehicles in the pool was the best base to use when studying minor repairs, insurance, and depreciation. Office help is a fixed cost.

Required:
A. Contrast a static budget with a flexible budget.
B. Suppose that the university 's budget officer desired to prepare a report that compared budgeted and actual costs. Should the report be based on a static budget or a flexible budget? Why?
C. On the basis of the information presented, determine the budgeted amounts for the five preceding costs that would be used in a flexible budget.

Question 1

Cost formula per unit of activity
Actual costs incurred
Budget based on actual activity
Variance

Variable costs:

Supplies
\$22.30
\$ 4,050
\$ 4,460
\$410 F

Power 8.60 1,690 1,720 30 F

Total variable cost
\$30.90
5,740 6,180 440 F

Fixed costs:

6,240
6,200
40 U

Depreciation

6,280 6,200 80 U

Total fixed cost

12,520 12,400 120 U

Total cost

\$18,260
\$18,580
\$320 F
Question 2
A.

Budget calculations:
Direct materials used: \$480,000  8,000 units = \$60.00 per unit
Direct labor: \$60,000  8,000 units = \$7.50 per unit
Variable manufacturing overhead: \$150,000  8,000 units = \$18.75 per unit
B. The general manager 's unhappiness is appropriate because of the variances that