Cornerstone Exercise 12.4 (Algorithmic) Activity-Based Flexible Budgeting

Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:

Four welding units, with a lease cost of $15,000 per year per unit Six welding employees each paid a salary of $46,000 per year (A total of 12,000 welding hours are supplied by the six workers.) Welding supplies: $400 per job Welding hours: 4 hours used per job

During the year, the activity operated at 80 percent of capacity and incurred the following actual activity and resource costs.

Lease cost: $60,000 Salaries: $289,800 Parts and supplies: $955,400

Required:

1. Prepare a flexible budget formula for the welding activity using welding hours as the driver.

Welding cost = $ + $ X

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2. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based Performance Report, if variance amount is unfavorable enter "U" , enter "F", if it is Favorable and enter "NA" if there is no variance.

Foy Company

Activity-Based Performance Report

Activity

Actual Cost

Budgeted Cost (80% level)

Budget Variance

Variance

Welding:

Fixed cost

$

$

$

Variable cost

3. What if welders were hired through outsourcing and paid $30 per hour (the welding equipment is provided by Foy)? Repeat Requirement 1 for the outsourcing case.

Welding cost = $ + $ X