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Unformatted text preview: gallons.20X9 was hotter than usual, and Mooster found them selves actually producing 105,000
gallons. Total factory costs were $513,000.
Mooster’s July’s budget versus actual expense analysis reveals unfavorable variances for materials,
Mooster’s July’s budget versus actual expense mean the production manager has done a materials,
labor, and variable factory overhead. Does this analysis reveals unfavorable variances forpoor job in
labor, and costs? factory overhead. Does this mean the production manager a glance, poor
controllingvariableRemember that actual production volume exceeded plan. Athas done ait is job in
controlling to reach any conclusion. What is needed is a performance report where the budget
challenging costs? Remember that actual production volume exceeded plan. At a glance, it is is
challenging to on the actual volume.
“flexed” based reach any conclusion. What is needed is a performance report where the budget is
“flexed” based on the actual volume.
The flexible budget reveals a much different picture. Rather than incurring $8,000 of cost overruns
The flexible budget reveals a much different the static budget, you can see below of total
as portrayed by the variances associated with picture. Rather than incurring $8,000 thatcost overruns
as portrayed by were $7,000 below what would static budget, 105,000 units of output. On
production coststhe variances associated with the be expected atyou can see below that total balance,
production costs production below what done good job.
it appears that thewere $7,000 manager haswouldabe expected at 105,000 units of output. On balance,
it appears that the production manager has done a good job.
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16 Flexible Budgets Tools for Enterprise Performance Evaluation M OOSTER’S DAIRY - Flexible Budget/Expense Analysis
For the Month Ending July 31, 20X9
Variable factory overhead $ 1 05,000
155,000 $ 1 05,000
157,500 $ ( 500)
2,500 Total Variable Expenses $ 313,000 $ 315,000 $ 2 ,000 Fixed Factory Overhead $ 200,000 $ 205,000 $ 5 ,000 Total Manufacturing Costs * Budget
(105,000 units) $ 513,000 $ 520,000 $ 7,000 Variance Specifically, direct materials cost exactly $1.00 per gallon of output. Direct labor totaled $500 in
excess of the plan amount of $52,500 (105,000 units X $0.50 = $52,500), resulting in an
unfavorable labor variance. This could be due to using more labor hours or paying a higher labor
rate per hour -- or some combination thereof. Later in this chapter, you will learn how to perform
analysis to better identify the root contributing cause of such variances. The variable factory
overhead was expected at $157,500 (105,000 units X $1.50 per unit = $157,500), but actually only
cost $155,000. Fixed factory overhead was $5,000 less than anticipated. 2.1 Flexible Budget for Performance Evaluations
The flexible budget responds to changes in activity, and may provide a better tool for performance
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