Braemar Saddlery uses department budgets and performance reports in planning and
ID: 2559818 • Letter: B
Question
Braemar Saddlery uses department budgets and performance reports in planning and controlling its manufacturing operations. The following annual performance report for the custom saddle production department was presented to the president of the company Budgeted Costs for 5,000 Units Total Actual Costs Incurred Over (Under) Budget Per Unit Variable manufacturing costs Direct materials Direct labor Indirect labor Indirect materials, supplies, etc $ 30.00 150,000 171,000 21,00 48.00 15.00 9.00 240,000 75,000 45,000 261, 500 95,500 48,400 21,500 20,500 3,40 102.00 510,000 576,400 66,40 Total variable manufacturing costs Fixed manufacturing costs: $ 9.00 $ 45,00045,000 $ Lease rental Salaries of foremen Depreciation and other 24.00 15.00 120,000 75,000 125,000 78,600 3,60 $. 48.00 240,000 248,600 8,60€ $150.00 $ 750,000 825,000 $ 75,000 Total fixed manufacturing costs Total manufacturing costs Although a production volume of 5,000 saddles was originally budgeted for the year, the actual volume of production achieved for the year was 6,000 saddles. Direct materials and direct labor are charged to production at actual cost. Factory overhead is applied to production at the predetermined rate of 150 percent of the actual direct labor cost. After a quick glance at the performance report showing an unfavorable manufacturing cost variance of $75,000, the president said to the accountant: "Fix this thing so it makes sense. It looks as though our production people really blew the budget. Remember that we exceeded our budgeted production schedule by a significant margin. I want this performance report to show a better picture of our ability to control costs." Required: a. Prepare a revised performance report for the year on a flexible budget basis. Use the same format as the production report above, but revise the budgeted cost figures to reflect the actual production level of 6,000 saddles c. What is the amount of over- or underapplied manufacturing overhead for the year?Explanation / Answer
Part 1 - Revised performance report on basis of actual production of 6000 units
Braemer saddlery
Revised performance report
For the year ended
$180000
(6000 * $30)
$288000
(6000 * $48)
$90000
(6000 * $15)
$54000
(6000 * $9)
Comment - President was correct in asking for the performance report. In original report, Actual cost were more than budget by $75000 and now actual cost are below the budgetd cost by $27000. The company has performed very well in controlling the variable cost
Part 2 - Calculation of over or under applied Manufacturing overhead
Particulars Per unit Budgeted Actual cost incurred Over/(under) budget Variable Manufacturing cost Direct Material $30$180000
(6000 * $30)
$171000 ($9000) Direct Labour $48$288000
(6000 * $48)
$261500 ($26500) Indirect labour $15$90000
(6000 * $15)
$95500 $5500 Indirect Material, supplies $9$54000
(6000 * $9)
$48400 ($5600) Total variable manufacturing costs (A) $102 $612000 $576400 ($35600) Fixed Manufacturing cost Lease rental $9 $45000 $45000 $0 Salaries of foreman $24 $120000 $125000 $5000 Depreciation and other $15 $75000 $78600 $3600 Total Fixed manufacturing costs (B) $48 $240000 $248600 $8600 Total Manufacturing cost (A + B) $150 $852000 $825000 ($27000)