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

Instructions:

(a) State the total monthly budgeted cost formula

(b) 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 bud-get data?

(c) In September, 64,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each actual 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 Budget Report Assembling Department For the Month Ended August 31, 2017 Difference Favorable F Unfavorable U Budget Actual Manufacturing Costs Variable costs Direct materials Direct labor Indirect materials Indirect labor Utilities Maintenance Total variable Fixed costs Rent Supervision Depreciation Total fixed Total costs $ 48,000 54,000 24,000 18,000 15,000 12,000 171,000 $ 47,000 51,200 24,200 17,500 14,900 12,400 167,200 $1,000 F 2,800 F 200 U 500 F 100 F 400 U 3,800 F -0- 12,000 17,000 6,000 35,000 $206,000 12.000 17,000 6,000 35,000 $202,200 $3,800 F 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