Problem - Basic flexible budgeting

Sydney, Inc., has the following budgeted production costs:

Direct materials $0.45 per unit

Direct labor 1.80 per unit

Variable factory overhead 2.30 per unit

Fixed factory overhead

Supervision $26,000

Maintenance 18,000

Other 12,000

The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.

During the recent quarter ended March 31, Sydney produced 25,500 units and incurred the following costs:

Direct Materials $11,710

Direct Labor 47,175

Variable factory overhead 53,940

Fixed factory overhead

Supervision 24,500

Maintenance 23,700

Other 16,800

Total production costs $177,825

Instructions:

a. Prepare a flexible budget for 21,000, 23,000, and 24,500 units of activity.

b. Was Sydney's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.

c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.