Exercise Flexible Budgets
ACC 3515 – MANAGEMENT ACCOUNTING
SEM 1 2014/2015
FLEXIBLE BUDGETING
1. The following overhead data are for a department in a large company.
Actual Costs Incurred
Static Budget
Activity level (in units)
200
220
Variable costs:
Supplies
$4,050
$4,906
Power
$1,690
$1,892
Fixed costs:
Administration
$6,240
$6,200
Depreciation
$6,280
$6,200
Required: Prepare a report that would be useful in assessing how well costs were controlled in this department.
2. Hempstead Corporation plans to manufacture 8,000 units over the next month at the following costs: direct materials, $480,000; direct labor, $60,000; variable manufacturing overhead, $150,000; straight-line depreciation, $24,000, and other fixed manufacturing overhead, $272,000. The result is total budgeted cost of $990,000.
Shortly after the conclusion of the month, Hempstead reported the following costs:
Howard Krueger and his crews turned out 7,200 units—a remarkable feat given that the company 's manufacturing plant was closed for several days because of blizzards and impassable roads. Krueger was especially pleased with the fact that total actual costs were less than budget. He was thus very surprised when Hempstead 's general manager expressed unhappiness about the plant 's financial performance.
Required:
i. Prepare a performance report that fairly compares budgeted and actual costs for the period just ended—namely, the report that the general manager likely used when assessing performance. ii. Should Krueger be praised for "having met the budget" or is the general manager 's unhappiness justified? Explain, citing any apparent problems for the firm.
3. Midwestern University operates a motor pool for the convenience of its faculty and staff. The following budget was prepared for an upcoming period:
The budget was based on the assumptions of 20 vehicles, with each vehicle being driven 8,000 miles. Midwestern acquired two additional vehicles early in the period under study.
SEM 1 2014/2015
FLEXIBLE BUDGETING
1. The following overhead data are for a department in a large company.
Actual Costs Incurred
Static Budget
Activity level (in units)
200
220
Variable costs:
Supplies
$4,050
$4,906
Power
$1,690
$1,892
Fixed costs:
Administration
$6,240
$6,200
Depreciation
$6,280
$6,200
Required: Prepare a report that would be useful in assessing how well costs were controlled in this department.
2. Hempstead Corporation plans to manufacture 8,000 units over the next month at the following costs: direct materials, $480,000; direct labor, $60,000; variable manufacturing overhead, $150,000; straight-line depreciation, $24,000, and other fixed manufacturing overhead, $272,000. The result is total budgeted cost of $990,000.
Shortly after the conclusion of the month, Hempstead reported the following costs:
Howard Krueger and his crews turned out 7,200 units—a remarkable feat given that the company 's manufacturing plant was closed for several days because of blizzards and impassable roads. Krueger was especially pleased with the fact that total actual costs were less than budget. He was thus very surprised when Hempstead 's general manager expressed unhappiness about the plant 's financial performance.
Required:
i. Prepare a performance report that fairly compares budgeted and actual costs for the period just ended—namely, the report that the general manager likely used when assessing performance. ii. Should Krueger be praised for "having met the budget" or is the general manager 's unhappiness justified? Explain, citing any apparent problems for the firm.
3. Midwestern University operates a motor pool for the convenience of its faculty and staff. The following budget was prepared for an upcoming period:
The budget was based on the assumptions of 20 vehicles, with each vehicle being driven 8,000 miles. Midwestern acquired two additional vehicles early in the period under study.