Laesecke Company uses budgets to control costs. The May 2016 budget report for the company's packaging department
Question:
Laesecke Company uses budgets to control costs. The May 2016 budget report for the company's packaging department is as follows:
The monthly budget amounts in the report were based on an expected production of 50,000 units per month or 600,000 units per year. The company president was unhappy with the department manager's performance. The department man- ager could not understand the unfavourable results. In May, 55,000 units were produced.
Instructions
(a) State the total budgeted cost formula.
(b) Prepare a budget report for May, using flexible budget data. Why does this report provide a better basis for evaluating performance than the report based on static budget data?
(c) In June, 40,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 20% less in June than its actual cost in May, and (2) fixed costs were the same in the month of June as in May.
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly