Basic flexible budgeting
Centron, Inc., has the following budgeted production costs:
|
Direct materials |
$0.40 per unit |
|
Direct labor |
1.80 per unit |
|
Variable factory overhead |
2.20 per unit |
|
Fixed factory overhead |
24,000 |
|
Supervision |
18,000 |
|
Maintenance |
12,000 |
The company normally manufactures between 20,000 and 25,000 units each quarter.
Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
|
Direct Materials |
10,710 |
|
Direct Labor |
47,175 |
|
Variable factory overhead |
51,940 |
|
Fixed factory overhead |
|
|
Supervision |
24,500 |
|
Maintenance |
23,700 |
|
Other |
16,800 |
|
Total production costs |
174,825 |
Instructions:
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron’s experience in the quarter cited better or worse than anticipated? Prepare
an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the
measurement of performance.