Pacific Company_Flexible Budget

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Pacific Company provides the following information about its budgeted and actual results for June 2013. Although the expected volume for June was 25,000 units produced and sold, the company actually produced and sold 27,000 units.

 

Budget data – 25,000 units

(asterisks identify factory overhead items):

Selling price

$5.00 per unit

Variable costs (per unit of output)

Direct materials

1.24 per unit

Direct labour

1.50 per unit

*Factory supplies

0.25 per unit

*Utilities

0.50 per unit

Selling costs

0.40 per unit

Fixed costs (per month)

*Amortization of machinery

$3,750

*Amortization of building

2,500

General liability insurance

1,200

Property taxes on office equipment

500

Other administrative expense

750

 

Actual data – 27,000 units

(asterisks identify factory overhead items):

Selling price

$5.23 per unit

Variable costs (per unit of output)

Direct materials

1.12 per unit

Direct labour

1.40 per unit

*Factory supplies

0.37 per unit

*Utilities

0.60 per unit

Selling costs

0.34 per unit

Fixed costs (per month)

*Amortization of machinery

$3,710

*Amortization of building

2,500

General liability insurance

1,250

Property taxes on office equipment

485

Other administrative expense

900

 

 

 

 

 

 

Standard manufacturing costs based on expected output of 25,000 units:

 

          Per Unit of Output

 

       Quantity to be Used

 

       Total Cost

Direct materials, 4 grams @ $0.31/g

$1.24/unit

100,000 g

$31,000

Direct labour, 0.25 hr @$6.00/hr

$1.50/unit

6,250 hr

37,500

Overhead

$1.00/unit

           25,000

      

 

Actual costs incurred to produce 27,000 units:

 

Per Unit of Output

Quantity to be Used

Total Cost

Direct materials, 4 grams @ $0.28/g

$1.12/unit

108,000 g

$30,240

Direct labour, 0.20 hr @$7.00/hr

$1.40/unit

5,400 hr

37,800

Overhead

 

Standard costs based on  expected output of 27,000 units:

 

$1.20/unit

           32,400

 

 

 

 

          Per Unit of Output

      Quantity to be Used

Total Cost

Direct materials, 4 grams @ $0.31/g

$1.24/unit

108,000 g

$33,480

Direct labour, 0.25 hr @$6.00/hr

$1.50/unit

6,750 hr

40,500

Overhead

                                26,500

 

Required:

1. Prepare flexible budgets for June showing expected sales, costs, and income under assumptions of 20,000, 25,000, and 30,000 units of output produced and sold.

2. Prepare a flexible budget performance report that compares actual results with the amounts budgeted if the actual volume had been expected.

3. Apply variance analyses for direct materials, and direct labour.

 

 

 

 

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    Pacific Company_Flexible Budget
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