Static versus flexible budget
Static budgets present budgeted amounts based on fixed assumptions, whereas flexible budgets change base on activity level. A flexible budget is a static budget, restated at different leverls of activity.
Actual departmental expenses for the month of May for the Assembly department of Destin Enterprises are compared to a static budget in the Assembly Department Expenses report shown. A flexible budget, the Assembly Department Expenses Budget, is also presented for different levels of production.
Destin Enterprises Assembly Department Expenses for the Month of May
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Budget
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Actual
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(1,700 units)
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Variable cost:
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Direct materials
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$10,275
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$8,500
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Direct labor
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133,575
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127,500
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Variable overhead
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61,650
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59,500
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Total variable cost
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$205,500
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$195,500
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Fixed cost
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1,000
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1,000
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Total department costs
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$206,500
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$196,500
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Destin Enterprises Assembly Department Expenses Budget For the Month of May
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Units of production
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1,100
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1,700
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2,100
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Variable cost:
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Direct materials
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$5,500
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$8,500
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$10,500
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Direct labor
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82,500
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127,500
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157,500
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Variable overhead
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38,500
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59,500
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73,500
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Total variable cost
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$126,500
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$195,500
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$241,500
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Fixed cost
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1,000
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1,000
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1,000
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Total department costs
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$127,500
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$196,500
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$242,500
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A. The Assembly Department Expenses report shows that the Assembly department spent $206,500, which is $10,000 over budget, in May. The Assembly department produced 1,870 units in May.
Is this good news or bad news? Please choice one from the following:
B. Seclect a statement to support your answer. Please choice one from the following:
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Destin produced fewer units at a higher than budgeted cost.
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Destin produced fewer units, but the cost to produce those units was less than budget.
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Destin produced more units but at a higher than budgeted cost.
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Destin produced more units for less cost.
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