Question
MensClothing Company produces mens ties since 1995. In order to reasonably plan and closely control their manufacturing costs, they use the budgeting system. The following
MensClothing Company produces mens ties since 1995. In order to reasonably plan and closely control their manufacturing costs, they use the budgeting system. The following budgeted and actual amounts are released to top management for 2020 and they asked you, a cost accountant, to prepare a performance budget report so that they can analyze all type of variances including both favourable and unfavourable.
Cost
Budget at 5,000 Units
Actual Amounts at 5,800 Units
Direct materials
$175,000
$213,000
Direct labour
236,000
245,000
Equipment depreciation
8,000
8,000
Indirect labour
54,000
62,000
Indirect materials
29,000
33,000
Rent and insurance
19,000
20,000
Instructions:
a. Prepare a static budget report for MensClothing Company for the year. (5 marks)
Cost
Budgeted costs at 5,000 units
Static Budget Variance
Actual costs at 5,800 units
Direct materials
$175,000
$213,000
Direct labour
236,000
245,000
Equipment depreciation
8,000
8,000
Indirect labour
54,000
62,000
Indirect materials
29,000
33,000
Rent and insurance
19,000
20,000
b. Prepare a flexible budget report for MensClothing Company for the year. (10 marks)
Budgeted costs at 5,000 units
Variance
Flexible Budget at actual activity level
Variance
Actual costs at 5,800 units
$175,000
$213,000
236,000
245,000
8,000
8,000
54,000
62,000
29,000
33,000
19,000
20,000
c. Are there any problems identified in part (b) that top management and a production manager should be aware of? Briefly explain. (5 marks)
d. What are advantages of the flexible budget? Briefly explain. (5 marks)
MensClothing Company produces mens ties since 1995. In order to reasonably plan and closely control their manufacturing costs, they use the budgeting system. The following budgeted and actual amounts are released to top management for 2020 and they asked you, a cost accountant, to prepare a performance budget report so that they can analyze all type of variances including both favourable and unfavourable.
Cost | Budget at 5,000 Units | Actual Amounts at 5,800 Units |
Direct materials | $175,000 | $213,000 |
Direct labour | 236,000 | 245,000 |
Equipment depreciation | 8,000 | 8,000 |
Indirect labour | 54,000 | 62,000 |
Indirect materials | 29,000 | 33,000 |
Rent and insurance | 19,000 | 20,000 |
Instructions:
Cost | Budgeted costs at 5,000 units | Static Budget Variance | Actual costs at 5,800 units |
Direct materials | $175,000 |
| $213,000 |
Direct labour | 236,000 |
| 245,000 |
Equipment depreciation | 8,000 |
| 8,000 |
Indirect labour | 54,000 |
| 62,000 |
Indirect materials | 29,000 |
| 33,000 |
Rent and insurance | 19,000 |
| 20,000 |
|
|
|
|
Budgeted costs at 5,000 units | Variance | Flexible Budget at actual activity level | Variance | Actual costs at 5,800 units |
$175,000 |
|
|
| $213,000 |
236,000 |
|
|
| 245,000 |
8,000 |
|
|
| 8,000 |
54,000 |
|
|
| 62,000 |
29,000 |
|
|
| 33,000 |
19,000 |
|
|
| 20,000 |
|
|
|
|
|
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