Question :

Basic flexible budgeting

Sydney, Inc., has the subsequent 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 usually 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, correspondingly.

During the current quarter ended March 31, Sydney produced 25,500 units and incurred the subsequent 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. Purpose 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? Purpose an suitable performance report and describe your answer.

c. Clarify the benefit of using flexible budgets in the measurement of performance.