ACC 206 Week 4 Chapter 7 Problem 1 Basic flexible budgeting

Chapter 7 Problem 1: Basic flexible budgeting  

Centron, Inc., has the following budgeted production costs:

Direct materials         $0.40 per unit

Direct labor  1.80 per unit

The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed

25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.

During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:

            Total production costs            $174,825

Instructions:

1. a.       Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
2. b.      Was Centron’s experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
3. c.       Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.