Budgeting and Variance Analysis Using Only a Single Unit-Level Driver

Lawson Dental Products produces two different dental instruments in its St. Louis plant: crown crimping pliers and curved crown scissors. Amy Bunker, production manager, was upset with the latest performance report which indicated that she was $110,000 over the manufacturing budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Not only was she upset, but she was also genuinely puzzled by the results. Of the four major manufacturing inputs in the manufacturing cost budget (direct materials, direct labor, power, and setups), only the direct materials input was not over budget. The actual costs for these four inputs follow:

Line Item Description	Amount
Direct materials	$100,000
Direct labor	320,000
Power	135,000
Setups	140,000
Total	$695,000

Amy knew that her operation had produced more than originally had been planned so that more power and labor had naturally been used. She also knew that the uncertainty in scheduling had led to more setups than planned. When she pointed this out to Hector Gomez, the plant controller, he assured her that the budgeted costs had been adjusted for the increase in production activity. Curious, Amy asked about the methods to make the adjustment.

Hector: If the actual level of production activity differs from the original planned level, we adjust the budget using what are called flexible budget formulasformulas that allow us to predict cost for different levels of activity.

Amy: The approach seems reasonable. However, I'm sure something is wrong here. Tell me exactly how you adjusted the costs of direct materials, direct labor, power, and setups.

Hector: First, we obtain formulas for the individual items in the budget by using the method of least squares. We assume that cost variations can be explained by variations in production activity where activity is measured by direct labor hours. Here is a list of the cost formulas (flexible budget formulas) for the four items you mentioned. The variable X is the number of direct labor hours.

Direct materials cost = $5X Direct labor cost = $15X Power cost = $5,000 + $4X Setup cost = $100,000

Second, we predict what the costs should have been for the actual level of production activity for each item by using the actual direct labor hours. In your case, the actual direct labor hours used were 20,000 direct labor hours.

Required:

1. Using the actual 20,000 direct labor hours, calculate what the costs should have been for each of the four manufacturing cost inputs.

Line Item Description	Amount
Materials cost
Labor cost
Power cost
Setup cost

What are the total after-the-fact budgeted manufacturing costs? fill in the blank 1 of 1$