Cornerstone Exercise 12.4 (Algorithmic) 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 $11,000 per year per unit

Six welding employees each paid a salary of $54,000 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 80 percent of capacity and incurred the following actual activity and resource costs.

Lease cost: $44,000

Salaries: $340,200

Parts and supplies: $714,600

Required:

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

Welding cost

=

$

+

$ X

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Correct

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1. Activity flexible budgeting is the prediction of what activity costs will be as activity output changes.

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Solution

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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		$ Correct 15 of Item 2		$ Correct 16 of Item 2		$ Correct 17 of Item 2		Correct 18 of Item 2
Variable cost		Correct 20 of Item 2		Correct 21 of Item 2		Correct 22 of Item 2		Correct 23 of Item 2

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