Laesecke Company uses budgets to control costs. The May 2022 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 manager 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,

(2) Fixed costs were the same in June as in May.

Transcribed Image Text:

Manufacturing Costs Variable costs Direct materials Direct labour Indirect materials Indirect labour Utilities Maintenance Total variable costs Fixed costs Rent Supervision Depreciation Total fixed costs Total costs LAESECKE COMPANY Budget Report Packaging Department Month Ended May 31, 2022 Budget $ 37,500 45,000 15,000 12,500 10,000 5,000 125,000 10,000 7,000 5,000 22,000 $147,000 Actual $ 38,000 47,000 15,200 13,000 9,600 5,200 128,000 10,000 7,000 5,000 22,000 $150,000 Difference: Favourable (F)/ Unfavourable (U) $ 500 U 2,000 U 200 U 500 U 400 F 200 U 3,000 U -0- $3,000 U