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

Ratchet Company

Budget Report

Assembling Department

For the Month Ended August 31, 2017 Difference Favorable F

Manufacturing Cost Budget Actual Unfavorable U

Variable costs

Direct materials $ 48,000 47,000 $1,000 F

Direct labor 54,000 51,200 2,800 F

Indirect materials 24,000 24,200 200 U

Indirect labor 18,000 17,500 500 F

Utilities 15,000 14,900 100 F

Maintenance 12,000 12,400 400 U

Total variable 171,000 167,200 3,800 F

Fixed costs

Rent 12,000 12,000 0

Supervision 17,000 17,000 0

Depreciation 6,000 6,000 0

Total fixed 35,000 35,000 0

Total costs $ 206,000 $ 202,200 $3,800 F

The monthly budget amounts in the report were based on an expected production of 60,00 or 720,000 units per year. The Assembling Department manager is pleased with the report or at least praise for a job well done. The company president, however, is unhappy with the because only 58,000 units were produced.

Instructions

(a) State the total monthly budgeted cost formula.

(b) Prepare a budget report for August using flexible budget data. Why does this report pr basis for evaluating performance than the report based on static budget data?

(c) In September, 64,000 units were produced. Prepare the budget report using flexible bu (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed cos September as in August