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Centron, Inc., has the following budgeted production costs

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Chapter 7 Problem 1

Centron, Inc., has the following budgeted production costs:

Direct materials $0.40 per unit
Direct labor 1.80 per unit
Variable factory overhead 2.20 per unit
Fixed factory overhead
Supervision $24,000
Maintenance 18,000
Other 12,000

The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:

Direct materials  10,710
Direct labor  47,175
Variable factory overhead  51,940
Fixed factory overhead
Supervision  24,500
Maintenance  23,700
Other  16,800
Total production costs  174,825

Instructions:
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance

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