Problem - Basic flexible budgeting
Sydney, Inc., has the following budgeted production costs:
Direct materials $0.45 per unit
Direct labor 1.80 per unit
Variable factory overhead 2.30 per unit
Fixed factory overhead
Supervision $26,000
Maintenance 18,000
Other 12,000
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, Sydney produced 25,500 units and incurred the following costs:
Direct Materials $11,710
Direct Labor 47,175
Variable factory overhead 53,940
Fixed factory overhead
Supervision 24,500
Maintenance 23,700
Other 16,800
Total production costs $177,825
Instructions:
a. Prepare a flexible budget for 21,000, 23,000, and 24,500 units of activity.
b. Was Sydney's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.