ACC 406 Lecture Notes - Lecture 6: Fixed Cost, Variable Cost, Activity-Based Costing
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Activity-Based Flexible Budgeting
Foy Company has a welding activity and wants to develop aflexible budget formula for the activity. The following resourcesare used by the activity:
⢠Four welding units, with a lease cost of $15,000 per year perunit
⢠Six welding employees each paid a salary of $60,000 per year(A total of 9,000 welding hours are supplied by the sixworkers.)
⢠Welding supplies: $300 per job
⢠Welding hours: 3 hours used per job
During the year, the activity operated at 90 percent of capacityand incurred the following actual activity and resource costs.
⢠Lease cost: $60,000
⢠Salaries: $378,000
⢠Parts and supplies: $804,000
Required:
1. Prepare a flexible budget formula for thewelding activity using welding hours as the driver.
Welding cost | = | $ | + | $ X |
2. Prepare a performance report for the weldingactivity. In the last column of Foy Company Activity-BasedPerformance Report, if variance amount is unfavorable select "U" ,select "F", if it is Favorable and select "NA" if there is novariance.
FoyCompany | ||||
Activity-Based Performance Report | ||||
Activity | Actual Cost | Budgeted Cost (90% level) | Budget Variance | Variance |
Welding: | ||||
Fixed cost | $ | $ | $ | |
Variable cost |
3. What if welderswere hired through outsourcing and paid $30 per hour (the weldingequipment is provided by Foy)? Repeat Requirement 1 for theoutsourcing case.
Welding cost | = | $ | + | $ X |