Activity-Based Flexible Budgeting

Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:

Four welding units, with a lease cost of $12,000 per year per unit

Six welding employees each paid a salary of $46,000 per year (A total of 9,000 welding hours are supplied by the six workers.)

Welding supplies: $300 per job

Welding hours: 3 hours used per job

During the year, the activity operated at 95 percent of capacity and incurred the following actual activity and resource costs.

Lease cost: $48,000

Salaries: $289,800

Parts and supplies: $850,400

Required:

1. Prepare a flexible budget formula for the welding activity using welding hours as the driver.

Welding cost

=

$

+

$ X

2. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based Performance Report, if variance amount is unfavorable select "U" , select "F", if it is Favorable and select "NA" if there is no variance.

Foy Company
Activity-Based Performance Report
Activity	Actual Cost	Budgeted Cost (95% level)	Budget Variance	Variance
Welding:
Fixed cost	$	$	$
Variable cost

3. What if welders were hired through outsourcing and paid $30 per hour (the welding equipment is provided by Foy)? Repeat Requirement 1 for the outsourcing case.

Welding cost

=

$

+

$ X