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 F Unfavorable U Manufacturing Cost Variable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Maintenance Total variable Budget Actual $ 48,000 54,000 24,000 18,000 15,000 12,000 47,000 51,200 24.200 17,500 14,900 $1,000 F 2,800 F 200 U 500 F 100 F 400 U 3,800 F 167,200 Fixed costs Rent Supervision Depreciation Total fixed 12,000 17,000 6,000 35,000 12,000 17,000 Total costs $ 206,000 $ 202,200 $3,800 F ei 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 (b) Prepare a budget report for August using flexible budget data. Why does this report provide a better (c) In September, basis for evaluating performance than the report based on static budget data? 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 NOTE: Enter a number in cells requesting a value; enter either a nu number or a formula in cells with a "?" l(a) State the total monthly budgeted cost formula. Fixed cost aluevariable cost of Value per unit Prepare a 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? (b) RATCHET COMPANY Assembling department Flexible budget Report For the Month Ended August 31, 2017 Difference Budget at 58,000 units Actual Costs 58,000 units Favorable F Unfavorable U Units Variable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Value Value Value Value Value | | I Value II ? Maintenance Total variable7 Fixed costs Rent Supervision Depreciation Value Value Value Value Value Value Total fixed Total costs Response (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. RATCHET COMPANY Assembling department Flexible budget Report Difference Favorable F Unfavorable U Actual Costs Budget at 64,000 units Units 64 ,000 units Variable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Maintenance Total variable 7 Fixed costs Rent Supervision Depreciation Value Value Value Value Value Value Value Value Value Total fixed Total costs Response After you have completed P10-3A consider the following additional question. 1. Assume that the number of units produced in September changed to 68,000. Revise the flexible budget report for September assuming (1) each variable cost was 12% higher than its actual cost in August and (s) fixed costs remain the same in September as in August
