Question

Gundy Company expects to produce 1,200,000 units of Product XX in 2017. Monthly production is expected to range from 80,000 to 120,000 units.

Budgeted variable manufacturing costs per unit are direct materials $5, direct labor $6, and overhead $8. Budgeted fixed manufacturing costs per unit for depreciation are $2 and for supervision are $1.
In March 2017, the company incurs the following costs in producing 100,000 units: direct materials $520,000, direct labor $596,000, and variable overhead $805,000. Actual fixed costs were equal to budgeted fixed costs.
Required:
1. Prepare a flexible budget report for March.
2. Were costs controlled?

Answer 1

Gundy Company

Flexible production budget report

For the month of March, 202x

budgeted actual variance

costs costs

Units produced 100,000 100,000 -

Variable costs:

• direct materials $500,000 $520,000 $20,000 U
• direct labor $600,000 $596,000 $4,000 F
• variable overhead $800,000 $805,000 $5,000 U

Fixed costs:

• Depreciation $200,000 $200,000 -
• Supervision $100,000 $100,000 -

Generally when we say that costs were controlled or under control, we mean that actual costs were equal or less than the budgeted costs. Only direct labor and fixed costs can be considered controlled, since we have unfavorable variances for direct materials and overhead.