QUESTION 6

Following is a summary of operating data of Bugs Company for the year 2008:

Sales - $ 7,00,000

For the cost of goods manufactured and sold: Direct materials - $1,200,000, Direct labor 1,100,000, Variable manufacturing overhead - 300,000, Fixed manufacturing overhead 800,000

For the Selling expenses: Variable - $ 300,000 Fixed - 400,000

General and administrative expenses: Variable - $ 100,000, Fixed - 1,200,000

Sales volume for 2009 is budgeted at 90% of 2008 sales volume. Prices are not expected to change. The 2009 budget amounts for the various other costs and expenses differ from those reported in 2008 only for the expected volume change in the variable items. Actual operating data for 2009 follow:

Sales - $5,800,000

Direct materials - 1,300,000

Direct labor - 1,100,000

Variable manufacturing overhead - 300,000

Fixed manufacturing overhead - 780,000

Variable selling expenses - 270,000

Fixed selling expenses - 290,000

Variable administrative expenses - 110,000

Fixed administrative expenses - 1,100,000

1. Prepare budget report comparing the planned operating budget for 2009 with the actual results for that year.
2. Prepare budget report that would be useful in pinpointing responsibility for the poor showing in 2009. (Hint: Prepare flexible operating budget.)