Laesecke Company uses budgets to control costs. The May 2012 budget report for the company's packaging department is as follows:

LAESECKE COMPANY

Budget Report

Packaging Department

Month Ended May 31, 2012

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. The company president was unhappy with the department manager's performance. The department manager could not understand the unfavourable 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.

Transcribed Image Text:

Difference: Favourable (F)/ Manufacturing Costs Direct materials Indirect materials Budget Unfavourable ( 1 Total variable costs 125,000 3 Total fixed costs $150,500 $3,000 U