Flexible Budgets with ABC The Cameron Corporation uses an ABC system, with the following manufacturing support (i.e., factory overhead) costs:
Unit-level support costs:
Electricity $1.00 per machine hour
Maintenance labor $1.50 per machine hour Batch-level support costs:
Production set-ups $300 per setup
Incoming Inspection $100 per purchase order Product-level support costs:
Engineering support $2,000 per engineering change order (ECO) Facilities-level support costs:
Depreciation-plant $15,000 per month
Insurance and property taxes $5,000 per month
The plant manager has asked you to prepare flexible (control) budgets for three levels of possible activity for the coming month: 4,000 machine hours, 5,000 machine hours, and 6,000 machine hours. Associated activity levels for manufacturing support costs are as follows:
|
|
Level of Output (MH)
|
|
4,000
|
5,000
|
6,000
|
|
Production setups
|
20
|
24
|
28
|
|
Purchase orders
|
10
|
15
|
20
|
|
ECOs
|
12
|
15
|
18
|
Required
1. Use an Excel spreadsheet to prepare a flexible (control) budget for the following three output levels:
(a) 4,000 machine hours, (b) 5,000 machine hours, and (c) 6,000 machine hours.
2. How do these flexible budgets differ from those prepared under a traditional approach (e.g., for the case where a single activity measure, machine hours, is used to construct the flexible (control) budget)?