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Hardesty Company

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Hardesty Company uses budgets in controlling costs. The May 2014 budget
report for the company’s Packaging Department is as follows.

Hardesty Company
Budget Report
Assembling Department
For the Month Ended May 31, 2014
Manufacturing Budget Actual Difference
Variable costs 
Direct materials   40,000  41,000  1,000  U 
Direct labor   45,000  47,300  2,300  U 
Indirect materials   15,000  15,200  200  U 
Indirect labor   12,500  13,000  500  U 
 Utilities   10,000  9,600  400  F 
 Maintenance   7,500  8,000  500  U 
 Total variable   130,000  134,100  4,100  U 
Fixed costs
 Rent   10,000  10,000  -  
 Supervision   7,000  7,000  -  
 Depreciation   4,000  4,000  -  
Total fixed  21,000  21,000  -  
Total costs  151,000  155,100  4,100 U

The monthly budget amounts in the report were based on an expected production of
50,000 units per month or 600,000 units per year.

The company president was displeased with the department manager’s performance.
The department manager, who thought he had done a good job, could not understand the
unfavorable results. In May, 55,000 units were produced.
Instructions
(a) State the total budgeted cost formula.
(b) Prepare a budget report for May using flexible budget data. Why does this report provide
a better basis for evaluating performance than the report based on static budget
data?
(c) In June, 40,000 units were produced. Prepare the budget report using flexible budget
data, assuming (1) each variable cost was 20% less in June than its a

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