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Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the companys Assembling Department is as follows. RATCHET COMPANY Budget Report Assembling

Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the companys Assembling Department is as follows.

RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2020

Difference

Manufacturing Costs

Budget

Actual

Favorable Unfavorable Neither Favorable nor Unfavorable

Variable costs
Direct materials

$50,740

$49,740

$1,000

Favorable
Direct labor

54,280

51,480

2,800

Favorable
Indirect materials

25,960

26,260

300

Unfavorable
Indirect labor

22,420

21,940

480

Favorable
Utilities

14,750

14,580

170

Favorable
Maintenance

5,900

6,120

220

Unfavorable
Total variable

174,050

170,120

3,930

Favorable
Fixed costs
Rent

10,000

10,000

0

Neither Favorable nor Unfavorable
Supervision

18,200

18,200

0

Neither Favorable nor Unfavorable
Depreciation

5,200

5,200

0

Neither Favorable nor Unfavorable
Total fixed

33,400

33,400

0

Neither Favorable nor Unfavorable
Total costs

$207,450

$203,520

$3,930

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.

(b) Prepare a budget report for August using flexible budget data.

(c) 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.

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