Minh Furniture uses budgets in controlling costs. The August 2020 budget report for the company’s Assembling Department is as follows.

The monthly budget amounts in the report were based on an expected production of 60,000 units per month or 720,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August because only 58,000 units were produced.

Instructions

a. State the total monthly budgeted cost formula.

b. Prepare a budget report for August 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 September, 64,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August.

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Minh Furniture Budget Report Assembling Department For the Month Ended August 31, 2020 Difference Favorable F Manufacturing Costs Budget Actual Unfavorable U Variable costs € 48,000 € 47,000 Direct materials €1,000 F 54,000 Direct labor 51,200 2,800 F 24,200 Indirect materials 24,000 200 U 500 F Indirect labor 18,000 17,500 15,000 Utilities 14,900 100 F 400 U Maintenance 12,000 12,400 167,200 Total variable 171,000 3,800 F Fixed costs 12,000 Rent 12,000 -0- 17,000 Supervision Depreciation 17,000 -0- 6,000 6,000 -0- 35,000 Total fixed 35,000 -0- Total costs €206,000 €202,200 €3,800 F