Acc206 Principles of Accounting: Week 4 Chapter 7 Problem 1 (P26-A1) Centron, Inc

Acc206 Principles of Accounting
Week 4 Assignment

Chapter 7 Problem 1
1. P26-A1 Basic flexible budgeting (L.O. 2)
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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