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Ratchet Company uses budgets in controlling costs
Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the company's Assembling Department is as follows.
RATCHET COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2020
Difference
Manufacturing Costs
Budget
Actual
Favorable
Unfavorable
Neither Favorable
nor Unfavorable
Variable costs Direct materials$48,380
$47,280
$1,100
Favorable Direct labor57,820
54,520
3,300
Favorable Indirect materials25,960
26,060
100
Unfavorable Indirect labor21,240
20,790
450
Favorable Utilities20,650
20,510
140
Favorable Maintenance7,080
7,190
110
Unfavorable Total variable181,130
176,350
4,780
FavorableFixed costs Rent12,100
12,100
-0-
Neither Favorable nor Unfavorable Supervision19,000
19,000
-0-
Neither Favorable nor Unfavorable Depreciation7,300
7,300
-0-
Neither Favorable nor Unfavorable Total fixed38,400
38,400
-0-
Neither Favorable nor UnfavorableTotal costs$219,530
$214,750
$4,780
Favorable
The monthly budget amounts in the report were based on an expected production of 59,000 units per month or 708,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August because only 57,000 units were produced.
(a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.)
The formula is$
+ variable costs of $
per unit.
(b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.)
RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended August 31, 2020
Difference
Budget
Actual Costs
Favorable
Unfavorable
Neither Favorable
nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
$
$
$
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
$
$
$
Favorable
Unfavorable
Neither Favorable nor Unfavorable
LINK TO TEXT
LINK TO VIDEO
In September, 63,000 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. (List variable costs before fixed costs.)
RATCHET COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended September 30, 2020
Difference
Budget
Actual Costs
Favorable
Unfavorable
Neither Favorable
nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
$
$
$
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Depreciation
Direct Labor
Direct Materials
Fixed Costs
Indirect Labor
Indirect Materials
Maintenance
Rent
Supervision
Total Costs
Total Fixed Costs
Total Variable Costs
Units
Utilities
Variable Costs
$
$
$
Favorable
Unfavorable
Neither Favorable nor Unfavorable
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Expert Solution
(a) State the total monthly budgeted cost formula:
Units produced = 59,000
Direct materials per unit = $48,380 / 59,000 = $0.82
Direct labor per unit = $57,820 / 59,000 = $0.98
Indirect materials per unit = $25,960 / 59,000 = $0.44
Indirect labor per unit = $21,240 / 59,000 = $0.36
Utilities per unit = $20,650 / 59,000 = $0.35
Maintenance per unit = $7,080 / 59,000 = $0.12
Variable Cost per unit = Direct materials per unit + Direct labor per unit + Indirect materials per unit + Indirect labor per unit + Utilities per unit + Maintenance per unit
= $0.82 + $0.98 + $0.44 + $0.36 + $0.35 + $0.12
Variable Cost per unit = $3.07
Fixed Costs = Rent + Supervision + Depreciation
= $12,100 + $19,000 + $7,300
Fixed Costs = $38,400
Total Cost = $38,400 + Variable Costs of $3.07 per unit
(b) Prepare a budget report for August using flexible budget data:
| RATCHET COMPANY | ||||
| Flexible Budget Report | ||||
| Assembling Department | ||||
| For the Month Ended August 31, 2020 | ||||
| Budget | Actual Costs | Difference | ||
| Favorable | ||||
| Unfavorable | ||||
| Neither Favorable | ||||
| nor Unfavorable | ||||
| Units | 57,000 | 57,000 | ||
| Variable costs | ||||
| Direct materials | $46,740 | $47,280 | $540 | Unfavorable |
| Direct labor | $55,860 | 54,520 | $1,340 | Favorable |
| Indirect materials | $25,080 | 26,060 | $980 | Unfavorable |
| Indirect labor | $20,520 | 20,790 | $270 | Unfavorable |
| Utilities | $19,950 | 20,510 | $560 | Unfavorable |
| Maintenance | $6,840 | 7,190 | $350 | Unfavorable |
| Total Variable Cost | $174,990 | 176,350 | $1,360 | Unfavorable |
| Fixed Costs: | ||||
| Rent | 12,100 | 12,100 | 0 | Neither Favorable nor Unfavorable |
| Supervision | 19,000 | 19,000 | 0 | Neither Favorable nor Unfavorable |
| Depreciation | 7,300 | 7,300 | 0 | Neither Favorable nor Unfavorable |
| Total fixed | 38,400 | 38,400 | 0 | Neither Favorable nor Unfavorable |
| Total costs | $213,390 | $214,750 | $1,360 | Unfavorable |
Workings:
| Units | 57000 |
| Variable costs | |
| Direct materials | =0.82*57000 |
| Direct labor | =0.98*57000 |
| Indirect materials | =0.44*57000 |
| Indirect labor | =0.36*57000 |
| Utilities | =0.35*57000 |
| Maintenance | =0.12*57000 |
c) In September, 63,000 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. (List variable costs before fixed costs.)
| RATCHET COMPANY | ||||
| Flexible Budget Report | ||||
| Assembling Department | ||||
| For the Month Ended August 31, 2020 | ||||
| Budget | Actual Costs | Difference | ||
| Favorable | ||||
| Unfavorable | ||||
| Neither Favorable | ||||
| nor Unfavorable | ||||
| Units | 63,000 | 63,000 | ||
| Variable costs | ||||
| Direct materials | $51,660 | $52,008 | $348 | Unfavorable |
| Direct labor | $61,740 | 59,972 | $1,768 | Favorable |
| Indirect materials | $27,720 | 28,666 | $946 | Unfavorable |
| Indirect labor | $22,680 | 22,869 | $189 | Unfavorable |
| Utilities | $22,050 | 22,561 | $511 | Unfavorable |
| Maintenance | $7,560 | 7,909 | $349 | Unfavorable |
| Total Variable Cost | $193,410 | 193,985 | $575 | Unfavorable |
| Fixed Costs: | ||||
| Rent | 12,100 | 12,100 | 0 | Neither Favorable nor Unfavorable |
| Supervision | 19,000 | 19,000 | 0 | Neither Favorable nor Unfavorable |
| Depreciation | 7,300 | 7,300 | 0 | Neither Favorable nor Unfavorable |
| Total fixed | 38,400 | 38,400 | 0 | Neither Favorable nor Unfavorable |
| Total costs | $231,810 | $232,385 | $575 | Unfavorable |
Workings:
| Units | 63000 | 63000 |
| Variable costs | ||
| Direct materials | =0.82*63000 | =47280*1.1 |
| Direct labor | =0.98*63000 | =54520*1.1 |
| Indirect materials | =0.44*63000 | =26060*1.1 |
| Indirect labor | =0.36*63000 | =20790*1.1 |
| Utilities | =0.35*63000 | =20510*1.1 |
| Maintenance | =0.12*63000 | =7190*1.1 |
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