pacific company flexible budget 500675

Pacific Company provides the following information about its budgeted and actual results for June 2013. Although the expected volume for June was 25,000 units produced and sold, the company actually produced and sold 27,000 units.

Budget data 25,000 units

(asterisks identify factory overhead items):

Selling price

$5.00 per unit

Variable costs (per unit of output)

Direct materials

1.24 per unit

Direct labour

1.50 per unit

*Factory supplies

0.25 per unit

*Utilities

0.50 per unit

Selling costs

0.40 per unit

Fixed costs (per month)

*Amortization of machinery

$3,750

*Amortization of building

2,500

General liability insurance

1,200

Property taxes on office equipment

500

Other administrative expense

750

Actual data 27,000 units

(asterisks identify factory overhead items):

Selling price

$5.23 per unit

Variable costs (per unit of output)

Direct materials

1.12 per unit

Direct labour

1.40 per unit

*Factory supplies

0.37 per unit

*Utilities

0.60 per unit

Selling costs

0.34 per unit

Fixed costs (per month)

*Amortization of machinery

$3,710

*Amortization of building

2,500

General liability insurance

1,250

Property taxes on office equipment

485

Other administrative expense

900

Per Unit of Output

Quantity to be Used

Total Cost

Direct materials, 4 grams @ $0.31/g

$1.24/unit

100,000 g

$31,000

Direct labour, 0.25 hr @$6.00/hr

$1.50/unit

6,250 hr

37,500

Overhead

$1.00/unit

25,000

Per Unit of Output

Quantity to be Used

Total Cost

Direct materials, 4 grams @ $0.28/g

$1.12/unit

108,000 g

$30,240

Direct labour, 0.20 hr @$7.00/hr

$1.40/unit

5,400 hr

37,800

Overhead

Standard costs based on expected output of 27,000 units:

$1.20/unit

32,400

Per Unit of Output

Quantity to be Used

Total Cost

Direct materials, 4 grams @ $0.31/g

$1.24/unit

108,000 g

$33,480

Direct labour, 0.25 hr @$6.00/hr

$1.50/unit

6,750 hr

40,500

Overhead

26,500

Required:

1. Prepare flexible budgets for June showing expected sales, costs, and income under assumptions of 20,000, 25,000, and 30,000 units of output produced and sold.

2. Prepare a flexible budget performance report that compares actual results with the amounts budgeted if the actual volume had been expected.

3. Apply variance analyses for direct materials, and direct labour.