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ACTG2020_Week8 Ch9_2014

Depreciation 12000 12000 i nsurance 2000 2050 total

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Unformatted text preview: able costs should budgeted activity - variable costs should be lower if actual activity be lower if actual activity is lower? is lower? The answer is unclear because the actual The answer is unclear because the actual activity level (8,000 machine hours) does activity level (8,000 machine hours) does not equal the budgeted activity level not equal the budgeted activity level (10,000 machine hours). (10,000 machine hours). LO 3 Static Budgets and Performance Reports The relevant question is .. .. .. The relevant question is “How much of the favourable cost “How much of the favourable cost variance is due to lower activity, and variance is due to lower activity, and how much is due to good cost how much is due to good cost control?” control?” To answer the question, To answer the question, we must we must the budget to the the budget to the actual level of activity. actual level of activity. LO 3 Preparing a Flexible Budget To that: a budget we need to know Total variable costs change in direct proportion to changes in activity. Total fixed costs remain unchanged within the relevant range. LO 3 Preparing a Flexible Budget CheeseCo Cost Formula per Hour Total Fixed Cost Flexible Budgets 8,000 10,000 12,000 Hours Hours Hours Machine hours V ariable costs Indirect labour Indirect material Power Total variable cost Fixed costs Depreciation Insurance Total fixed cost Total overhead costs 8,000 $ $ 4.00 3.00 0.50 7.50 10,000 12,000 Variable costs are expressed as a constant amount per hour. $40,000 ÷ 10,000 hours is $4.00 per hour. $ 12,000 2,000 Fixed costs are expressed as a total amount. LO 3 Preparing a Flexible Budget CheeseCo Cost Formula per Hour Total Fixed Cost Machine hours V ariable costs Indirect labour Indirect material Power Total variable cost Flexible Budgets 8,000 10,000 12,000 Hours Hours Hours 8,000 $ $ Fixed costs $4.00 Depreciation Insurance Total fixed cost Total overhead costs 4.00 3.00 0.50 7.50 10,000 12,000 $ 32,000 24,000 4,000 $ 60,000 per hour × 8,000 hours = $32,000 $ 12,000 2,000 LO 3 Preparing a Flexible Budget CheeseCo Cost Formula per Hour...
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