Chambers Company uses budgets in controlling costs. The May 2005 budget
report for the companys Packaging Department is as follows.
CHAMBERS COMPANY
Budget Report
Packaging Department
For the Month Ended May 31, 2005
Difference
Favorable F
Manufacturing Costs Budget Actual Unfavorable U
Variable costs
Direct materials $ 35,000 $ 37,500 $2,500 U
Direct labor 50,000 53,000 3,000 U
Indirect materials 15,000 15,200 200 U
Indirect labor 12,500 13,000 500 U
Utilities 7,500 7,100 400 F
Maintenance 5,000 5,200 200 U
Total variable 125,000 131,000 6,000 U
Fixed costs
Rent 8,000 8,000 0
Supervision 9,000 9,000 0
Depreciation 5,000 5,000 0
Total fixed 22,000 22,000 0
Total costs $147,000 $153,000 $6,000 U
The monthly budget amounts in the report were based on an expected production of
50,000 units per month or 600,000 units per year.
Prepare flexible budget, budget
report, and graph for manufacturing
overhead.
(SO 3)
State total budgeted cost formula,
and prepare flexible
budget reports for 2 time
periods.
(SO 2, 3)
(a) Total costs: 22,500 DLH,
$79,500; 30,000 DLH,
$96,000
(b) Budget $90,500
Actual $86,500
Problems: Set A 433
The company president was displeased with the department managers performance.
The department manager, who thought he had done a good job, could not understand
the unfavorable results. In May, 55,000 units were produced.
Instructions
(a) State the total budgeted cost formula.
(b) Prepare a budget report for May using flexible budget data. Why does this report provide
a better basis for evaluating performance than the report based on static budget
data?
(c) In June, 40,000 units were produced. Prepare the budget report using flexible budget
data, assuming (1) each variable cost was 20% less in June than its actual cost in May,
and (2) fixed costs were the same in the month of June as in May
