Question

Gundy Company expects to produce 1,243,200 units of Product XX in 2020. Monthly production is expected to range from 79,000 to 121,000 units. Budgeted variable manufacturing costs per unit are: direct materials $4, direct labor $7, and overhead $10. Budgeted fixed manufacturing costs per unit for depreciation are $5 and for supervision are $3. In March 2020, the company incurs the following costs in producing 100,000 units: direct materials $425,000, direct labor $695,000, and variable overhead $1,005,000. Actual fixed costs were equal to budgeted fixed costs.

Required:
Prepare a flexible budget report for March.

Answer 1

Gundy Company

Flexible Budget Report for the month of March, 2020:

Flexible Budget Actual Budget Variance

Direct materials $400,000 $425,000 $25,000 U

Direct labor $700,000 $695,000 $5,000 F

Overhead $1,000,000 $1,005,000 $5,000 U

Fixed Cost $632,000 $632,000 $0 None

Step-by-step explanation:

a) Data and Calculations:

Expected production units for 2020 = 1,243,200

Monthly production range = 79,000 to 121,000

Budgeted variable manufacturing costs per unit are:

Direct materials $4

Direct labor $7

Overhead $10

Total variable cost $21

Budgeted fixed manufacturing costs per unit:

Depreciation $5

Supervision $3 $8

Total costs $29

Total fixed cost = 79,000 * $8 = $632,000

Actual costs incurred in March 2020:

Production units = 100,000

Direct materials = $425,000 ($4.25 per unit)

Direct labor = $695,000 ($6.95 per unit)

Variable overhead = $1,005,000 ($10.05 per unit)

Actual fixed costs = $632,000

Flexible Budget:

Direct materials $400,000 ($4 * 100,000)

Direct labor $700,000 ($7 * 100,000)

Overhead $1,000,000 ($10 * 100,000)

Fixed Cost $632,000