Answer:
Evanson Company
Evanson Company
Flexible Monthly Budget
Activity Level:
Finished goods (Units) 40,000 60,000 80,000
Variable costs:
Direct materials $560,000 $840,000 $1,120,000
Direct labor 600,000 900,000 1,200,000
Manufacturing overhead 640,000 960,000 1,280,000
Total variable costs $1,800,000 $2,700,000 $3,600,000
Fixed manufacturing
overhead 135,000 135,000 135,000
Total production costs $1,935,000 $2,835,000 $3,735,000
Explanation:
a) Data and Calculations:
Expected production units per year = 540,000
Average monthly production units = 45,000 (540,000/12)
Manufacturing costs per unit:
Direct materials $ 14
Direct labor 15
Variable manufacturing overhead 16
Fixed manufacturing overhead 3
Total yearly fixed overhead = $1,620,000 (540,000 * $3)
Monthly fixed overhead = $135,000 ($1,620,000/12)
b) A flexible budget has varying activity levels from one period to the next. One interesting feature of the flexible budget is that the variable costs are fixed per unit, but their totals vary with the volume levels. On the other hand, the fixed costs remain static in totals but vary per unit.
