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Tanker Tech-tethers produces an electronic dog collar. The annual budget for the collar
production in the current year was
Prepare an end-of-the-year budget variance report using:
- Static budgeting
- Flexible budgeting
Explain which of the two approaches is better? Explain which best reflects the performance of
the production manager?
Thank you:-)
Production and sales 4000 units 3900 units
Variable production costs $640,000 $631,800
Fixed production costs $480,000 $483,000
Solution
Static budget
160
640,000/4000]
631,800
Flexible budget
624,000
[160*3900]
static budget is better as it shows a favorable variance .
However flexible budget better reflects the performance of production manager.
Unit cost static budget actual (3900units) variance
variable production cost
160
640,000/4000]
640,000 631,800 8200 F
Fixed production cost - 480,000 483,000 3000 U
Total cost 1,120,000 1,114,800 5200 F

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Tanker Tech-tethers produces an electronic dog collar- The annual budg.docx

  • 1. Tanker Tech-tethers produces an electronic dog collar. The annual budget for the collar production in the current year was Prepare an end-of-the-year budget variance report using: - Static budgeting - Flexible budgeting Explain which of the two approaches is better? Explain which best reflects the performance of the production manager? Thank you:-) Production and sales 4000 units 3900 units Variable production costs $640,000 $631,800 Fixed production costs $480,000 $483,000 Solution Static budget 160 640,000/4000] 631,800 Flexible budget 624,000 [160*3900]
  • 2. static budget is better as it shows a favorable variance . However flexible budget better reflects the performance of production manager. Unit cost static budget actual (3900units) variance variable production cost 160 640,000/4000] 640,000 631,800 8200 F Fixed production cost - 480,000 483,000 3000 U Total cost 1,120,000 1,114,800 5200 F