Colt Company uses budgets in controlling costs. The August 2011 budget re-

port for the company's Assembling Department is as follows.

COLT COMPANY

Budget Report

Assembling Department

For the Month Ended August 31, 2011

Difference

Favorable F

Manufacturing Costs Budget Actual Unfavorable U

Variable costs

Direct materials 48,000 $ 47,000 $1,000 F

Direct labor 54,000 51,300 2,700 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 168,000 164,100 3,900 F

Fixed costs

Rent 12,000 12,000 -0-

Supervision 17,000 17,000 -0-

Depreciation 7,000 7,000 -0-

Total fixed 36,000 36,000 -0-

Total costs $204,000 $200,100 $3,900 F

The monthly budget amounts in the report were based on an expected production of

60,000 units per month or 720,000 units per year. 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.

Instructions

(a) State the total monthly budgeted cost formula.

(b) Prepare 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?

(c) In September, 64,000 units were produced. 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.