Problem 10-3A

Ratchet Company uses budgets in controlling costs. The August 2017 budget report for the companys Assembling Department is as follows.

RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2017 Difference Manufacturing Costs Budget Actual Favorable Unfavorable Neither Favorable nor Unfavorable Variable costs Direct materials $49,560 $48,460 $1,100 Favorable Direct labor 54,280 51,380 2,900 Favorable Indirect materials 28,320 28,420 100 Unfavorable Indirect labor 18,880 18,420 460 Favorable Utilities 17,700 17,570 130 Favorable Maintenance 9,440 9,670 230 Unfavorable Total variable 178,180 173,920 4,260 Favorable Fixed costs Rent 10,000 10,000 0 Neither Favorable nor Unfavorable Supervision 18,800 18,800 0 Neither Favorable nor Unfavorable Depreciation 7,400 7,400 0 Neither Favorable nor Unfavorable Total fixed 36,200 36,200 0 Neither Favorable nor Unfavorable Total costs $214,380 $210,120 $4,260 Favorable

The monthly budget amounts in the report were based on an expected production of 59,000 units per month or 708,000 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 57,000 units were produced.

(a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.)

The formula is = $ + variable costs of $ per unit.

(b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)

RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended August 31, 2017 Difference Budget Actual Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs $ $ $ Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs $ $ $ Favorable Unfavorable Neither Favorable nor Unfavorable

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In September, 63,000 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. (List variable costs before fixed costs.)

RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended September 30, 2017 Difference Budget Actual Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs $ $ $ Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs Favorable Unfavorable Neither Favorable nor Unfavorable Depreciation Direct Labor Direct Materials Fixed Costs Indirect Labor Indirect Materials Maintenance Rent Supervision Total Costs Total Fixed Costs Total Variable Costs Units Utilities Variable Costs $ $ $ Favorable Unfavorable Neither Favorable nor Unfavorable

Ratchet Company uses budgets in controlling costs. The August 2017 budget report for the company's Assembling Department is as follows. RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2017 Difference Favorable Unfavorable Neither Favorable Manufacturing Costs Budget_Actual nor Unfavorable Variable costs Direct materials $49,560 $48,460 $1,100 Favorable Direct labor 54,280 51,380 2,900 Favorable Indirect materials 28,320 28,420 100 Unfavorable Indirect labor 18,880 18,420 460 Favorable Utilities 17,700 17,570 130 Favorable Maintenance 9,440 9,670 230 Unfavorable Total variable | 178,180 173,920 4,260 Favorable Fixed costs Rent 10,000 10,000-0- Neither Favorable nor Unfavorable Supervision 18,800 18,800 -0- Neither Favorable nor Unfavorable Depreciation 7,400 7,400-0- Neither Favorable nor Unfavorable Total fixed 36,200 36,200 -0- Neither Favorable nor Unfavorable Total costs $214,380 $210,120 $4,260 Favorable The monthly budget amounts in the report were based on an expected production of 59,000 units per month or 708,000 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 57,000 units were produced. (a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) The formula is = + variable costs of $1 per unit. (b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)