Nigh Company uses budgets in controlling costs. The August 2002 budget report for the company's Assembling Department is as follows.

The budget data in the report are based on the master budget for the year, which assumed that 720,000 units would be produced. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August, because only 58,000 units were produced. {Hint: The budget amounts above are one-twelfth of the master budget.)

Instructions

(a) State the total monthly budgeted cost formula.

(b) Prepare a budget report for August using flexible budget data. Why does this report provide a better basis for evaluating performance than the report based on static budget data? Assume 62,000 units were expected to be produced

(c) In September, 64,000 units were produced when 65,000 were expected. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August.

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NIGH COMPANY Budget Report Assembling Department For the Month Ended August 31, 2002 Difference Manufacturing Costs Budget Actual Favorable F Unfavorable U Variable costs 99 Direct materials $ 48,000 $ 47,000 $1,000 F Direct labor 78,000 74,100 3,900 F Indirect materials 24,000 24,200 200 U Indirect labor 18,000 17,500 500 F Utilities 15,000 14,900 100 F Maintenance 9,000 9,200 200 U Total variable 192,000 186,900 5,100 F Fixed costs Rent 10,000 10,000 Supervision Depreciation Total fixed 17,000 17,000 7,000 7,000 -0- 34,000 34,000 -0- Total costs $226,000 $220,900 $5,100 F