Assume no beginning or ending inventory (they will produce the products in the same month that they
Question:
Assume no beginning or ending inventory (they will produce the products in the same month that they sell them). Ignore taxes. Use contribution margin income statement formatting.
LiveColor is preparing their 2019 budget. They estimate sales/production will be between 700,000 and 900,000 boxes of markers per month. LiveColor wants to look at both static budgets and flexible budgets to determine which is best for them. They have struggled in the past with determining whether budget variances were related to volume being above or below budget vs whether they are spending too much or too little on expenses. They want to be able to understand their budget variances in order to make better decisions.
Monthly Budget Data:
selling price per unit = 5.00/box
raw materials costs = 1.50/box
packaging costs = 0.80/box
salary and wages costs = 300,000/month
OT for production over 800,000 units = 0.70/box
fringe benefits = 50% of wages and OT
electricity= 0.20/box
waste and other costs = 0.10/box
rent costs = 500,000/month
insurance costs = 60,000/month
depreciation costs = 240,000/month
Note: Treat Salary and Wages Costs as Fixed Expenses.
- Show the static budget based on 800,000 units (boxes) produced.
- Show what the flexible budget would be if 700,000 units (boxes) were produced.
- Show what the flexible budget would be if 900,000 units (boxes) were produced.
- Show the flexible budget cost formula(s) for LiveColor.
- Explain the difference between static and flexible budgets and when each should be used.
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ