Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Textbook Question
Chapter 12, Problem 4CE
Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:
- Four welding units, with a lease cost of $12,000 per year per unit
- Six welding employees each paid a salary of $50,000 per year (A total of 9,000 welding hours are supplied by the six workers.)
- Welding supplies: $300 per job
- Welding hours: Three hours used per job
During the year, the activity operated at 90 percent of capacity and incurred the actual activity and resource costs, shown on page 676.
- Lease cost: $48,000
- Salaries: $315,000
- Parts and supplies: $805,000
Required:
- 1. Prepare a flexible budget formula for the welding activity using welding hours as the driver.
- 2. Prepare a performance report for the welding activity.
- 3. What if welders were hired through outsourcing and paid $30 per hour (the welding equipment is provided by Foy)? Repeat Requirement 1 for the outsourcing case.
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Activity-Based Flexible Budgeting
Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:
• Four welding units, with a lease cost of $11,000 per year per unit
• Six welding employees each paid a salary of $51,000 per year (A total of 12,000 welding hours are supplied by the six workers.)
• Welding supplies: $400 per job
• Welding hours: 4 hours used per job
During the year, the activity operated at 85 percent of capacity and incurred the following actual activity and resource costs.
• Lease cost: $44,000
• Salaries: $321,300
• Parts and supplies: $1,014,900
1. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based Performance Report, if variance amount is unfavorable select "U" , select "F", if it is Favorable and select "NA" if there is no variance.
Foy Company
Activity-Based Performance Report
Activity
Actual Cost
Budgeted Cost…
Chapter 12 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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