Fernetti Company uses budgets in controlling costs. The May 2010 budget report for the companys Packaging Department

Question:

Fernetti Company uses budgets in controlling costs. The May 2010 budget report for the company’s Packaging Department is as follows.

FERNETTI COMPANY Budget Report Packaging Department For the Month Ended May 31, 2010 Difference Favorable F Manufacturin

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 displeased with the department manager’s performance. The department manager, who thought he had done a good job, could not understand the unfavorable 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.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Accounting Principles

ISBN: 978-0470533475

9th Edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Question Posted: