E the comparison of the flexible budget with the

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(e) The comparison of the flexible budget with the actual results will provide higher quality information as it is comparing the same level of activity.
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8.17 Flexible budgets Plush pet toys are produced in a largely automated factory in standard lots of 100 toys each. A standard cost system is used to control costs and to assign cost to inventory. Variable overhead, estimated at $5 per lot, consists of miscellaneous items such as thread, a variety of plastic squeakers, and paints that are applied to create features such as eyes and whiskers. Fixed overhead, estimated at $24 000 per month, consists largely of depreciation on the automated machinery and rent for the building. Variable overhead is allocated based on lots produced. The standard fixed overhead allocation rate is based on the estimated output of 1000 lots per month. Required (a) Prepare a production budget for the coming year based on planned production of 12,000 lots. (b) Compare the budget prepared in (a) with a flexible budget based on actual activity of 15,000 lots.

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