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  • 1.  Doubt on flexible budgeting amount,

    Posted 05-26-2020 05:13 PM
    Hello everyone,

    I have a doubt on the below question. The doubt is shouldn't the budgeted amount be 42,000/37,500=$1.12? Why is taken as Actual amount divided by standard hours i.e 63,000/37,500?. Flexible budgeting is about comparing the actual standard amount with actual amount right?

    Olive Industries produced 30,000 units this month and used 36,000 machine hours. The company's static budget for manufacturing overhead costs based on 37,500 machine hours is as follows:

    Variable

    Indirect materials

    $294,000

    Indirect labor

    420,000

    Factory supplies

    42,000

    Fixed

    Depreciation

    $126,000

    Taxes

    21,000

    Supervision

    105,000

    During the month, Olive's actual costs were $1.75 per machine hour for factory supplies. What is the amount of difference for factory supplies shown on the company's manufacturing overhead flexible budget report?

    $7,980 favorable

    $2,625 unfavorable

    $2,520 unfavorable

    $0 – budgeted and actual costs were equal

    You Answered Correctly!

    Flexible budgets are prepared after a period is over to show budgeted amounts for the actual level of activity achieved. Since factory supplies is a variable cost, the amount in a flexible budget will be different from the amount in a static budget to the extent that the actual activity level differs from the activity level used to prepare the static budget. Olive's budgeted amount of factory supplies is $1.68 per machine hour ($63,000 ÷ 37,500). If 36,000 machine hours are used, the factory supplies in the flexible budget will be $60,480 ($1.68 × 36,000). The actual amount of factory supplies is $63,000 ($1.75 × 36,000). Since actual spending is $2,520 more than the flexible budget amount, the $2,520 variance is unfavorable.

    Regards,
    Ritin Nair



    ------------------------------
    Ritin Nair
    Analyst
    Ocwen Financial Solutions Private Ltd.
    Bangalore
    India
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  • 2.  RE: Doubt on flexible budgeting amount,

    Posted 05-27-2020 04:34 AM
    where this question ?

    ------------------------------
    Eslam Abdalla
    Accountant
    Riyadh
    Saudi Arabia
    ------------------------------



  • 3.  RE: Doubt on flexible budgeting amount,

    Posted 05-29-2020 05:10 PM
    Question starts from Olive Industires. Both question and answers is given. Below is the question and answer. 

    Olive Industries produced 30,000 units this month and used 36,000 machine hours. The company's static budget for manufacturing overhead costs based on 37,500 machine hours is as follows:

    Variable

    Indirect materials

    $294,000

    Indirect labor

    420,000

    Factory supplies

    42,000

    Fixed

    Depreciation

    $126,000

    Taxes

    21,000

    Supervision

    105,000

    During the month, Olive's actual costs were $1.75 per machine hour for factory supplies. What is the amount of difference for factory supplies shown on the company's manufacturing overhead flexible budget report?

    $7,980 favorable

    $2,625 unfavorable

    $2,520 unfavorable

    $0 – budgeted and actual costs were equal

    You Answered Correctly!

    Flexible budgets are prepared after a period is over to show budgeted amounts for the actual level of activity achieved. Since factory supplies is a variable cost, the amount in a flexible budget will be different from the amount in a static budget to the extent that the actual activity level differs from the activity level used to prepare the static budget. Olive's budgeted amount of factory supplies is $1.68 per machine hour ($63,000 ÷ 37,500). If 36,000 machine hours are used, the factory supplies in the flexible budget will be $60,480 ($1.68 × 36,000). The actual amount of factory supplies is $63,000 ($1.75 × 36,000). Since actual spending is $2,520 more than the flexible budget amount, the $2,520 variance is unfavorable.