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Chapter 23: Q2SE (page 1306)

Preparing flexible budgets

Moje, Inc. manufactures travel locks. The budgeted selling price is \(19 per lock, thevariable cost is \)9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.

Short Answer

Expert verified

The flexible budget of a company shows $27,000 operating income for 4,000 units and $97,000 operating income for 11,000 unitsfor the month ended April 30, 2018.

Step by step solution

01

 Step 1:Explanation on flexible budget

A flexible budget is a budget that adjusts to the volume or activity levels of an organisation. The flexible budget can be utilized for the determination of budgeted expenses, sales, and profits at different levels of activity.

02

Flexible budget

Moje, Inc.

Flexible Budget

For the month ofApril 30, 2018

Units

4,000

11,000

Sales Revenue @$19

$76,000

$209,000

Less:VariableCost @$9

($36,000)

($99,000)

Contribution margin

$40,000

$110,000

Less: Fixed cost

($13,000)

($13,000)

Operating Income

$27,000

$97,000

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Most popular questions from this chapter

Question:This Try It! continues the previous Try It! for Tipton Company, a shirt manufacturer. During June, Tipton made 1,200 shirts but had budgeted production at 1,400 shirts. Tipton gathered the following additional data:

Variable overhead cost standard \(0.50 per DLHr

Direct labor efficiency standard 2.00 DLHr per shirt

Actual amount of direct labor hours 2,520 DLHr

Actual cost of variable overhead \)1,512

Fixed overhead cost standard \(0.25 per DLHr

Budgeted fixed overhead \)700

Actual cost of fixed overhead $750

Calculate the following variances:

13. Variable overhead cost variance

14. Variable overhead efficiency variance

15. Total variable overhead variance

16. Fixed overhead cost variance

17. Fixed overhead volume variance

18. Total fixed overhead variance

Question:How does the static budget affect the cost and efficiency variances?

Question:List the fixed overhead variances, and briefly describe each.

Download an Excel template for this problem online in MyAccountingLab or at http://www.pearsonhighered.com/Horngren. Pilchuck Company manufactures tote bags and has provided the following information for September 2018:

Units

Actual Results

Static Budget

Static Budget

11,000

12,000

Sales Revenue

\(368,000

\)384,000

Variable Costs

183,000

198,000

Contribution Margin

185,000

186,000

Fixed Costs

76,000

77,184

Operating Income

\(109,000

\)108,816

  1. Requirements
  2. Prepare a flexible budget performance report, including the heading. Use the ABS function when calculating variances, and use the drop-down selections for F or U when describing the variances.
  3. Calculate the Static Budget Variance for operating income, and label it as a F (favorable) or U (unfavorable) variance.

Computing standard overhead allocation rates

The following information relates to Morgan, Inc.’s overhead costs for the month:

Static budget variable overhead

\(7,800

Static budget fixed overhead

\)3,900

Static budget direct labor hours

1,300 hours

Static budget number of units

5,200 units

Morgan allocates manufacturing overhead to production based on standard direct labor hours. Compute the standard variable overhead allocation rate and the standard fixed overhead allocation rate.
See all solutions

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