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Hill Company 48000

Price: $2.50


Hill Company uses budgets in controlling costs. The August 2014 budget report
for the company’s Assembling Department is as follows.


Hill Company
Budget Report
Assembling Department
For the Month Ended August 31, 2014
 
Manufacturing Budget Actual Difference
Variable costs 
Direct materials   48,000  47,000  1,000  F 
Direct labor   54,000  51,200  2,800  F 
Indirect materials   24,000  24,200  200  U 
Indirect labor   18,000  17,500  500  F 
 Utilities   15,000  14,900  100  F 
 Maintenance   6,000  6,200  200  U 
 Total variable   165,000  161,000  4,000  F 
Fixed costs
 Rent   12,000  12,000  -  
 Supervision   17,000  17,000  -  
 Depreciation   6,000  6,000  -  
Total fixed  35,000  35,000  -  
Total costs  200,000  196,000  4,000

The monthly budget amounts in the report were based on an expected production of 60,000
units per month or 720,000 units per year. The Assembling Department manager is pleased
with the report and expects a raise, or at least praise for a job well done. The company president,
however, is unhappy with the results for August because only 58,000 units were produced.

Instructions
(a) State the total monthly budgeted cost formula.
(b) Prepare a budget report for August 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 September, 64,000 units were produced. Prepare the budget report using flexible
budget data, assuming (1) each variable cost was 10% higher than its actual cost in

August, and (2) fixed costs were the same in September as in August.

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