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 $14,000 per year per unit
• Six welding employees each paid a salary of $45,000 per year (A total of 12,000 welding hours are supplied by the six workers.)
• Welding supplies: $400 per job
• Welding hours: 4 hours used per job

During the year, the activity operated at 80 percent of capacity and incurred the following actual activity and resource costs.

• Lease cost: $56,000
• Salaries: $283,500
• Parts and supplies: $955,500

Required:

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

Welding cost

=

$

+

$ X

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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 enter "U" , enter "F", if it is Favorable and enter "NA" if there is no variance.

Foy Company
Activity-Based Performance Report
Activity		Actual Cost		Budgeted Cost (80% 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