# Additional Budget Components and Performance Evaluation

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Additional Budget Components and Performance Evaluation

Walden University

1/10/2015

Part 1

The Flexible budget formula for the total monthly factory overhead cost will be expressed as:

The product of the Budgeted Variable Overhead Costs per Activity Unit and Total Activity Units and the sum of the Budgeted Fixed Overhead cost per month

Alternatively, a plot of the total number of hours work against the overhead cost would be depicted in a linear extrapolation between the between total overhead costs and fixed amount and the variable rate to be multiplied by the actual labor hours worked, to form a basis for comparison between Direct Materials price variance and the direct labor rate variance.

In this case flexible budgeting, cost elements maybe expressed as:

Total fixed Costs + (Unit variable costs x Units (manufacturing output/labour cost))

The data presented at the end of each month does not suggest a particular cost trend. Besides, there is no pre-determined budget to compare actual expenditure with a pre-determined budget.

Additionally, the information on the budgeted number of hours and actual cost per hour is no given, besides the total overhead cost quoted does not say that over-time is included in the final cost.

Therefore, as an HR manager, to be able to make decisions on number of employees and support staff, I would request for the numbers of hours budgeted for and the number of employees whom that budgeted work hours was based on. The planned unit/hourly rate should be determined based on historical data trend. This should address the increased activity level and the soaring cost of manufacturing.

A holistic overview would suggest that for an additional 100 hours, when the data for March and April is compared, would cost an extra \$600. This is however not consistent when the month of May data is considered, total labor cost would have been \$4800 but it is presented as \$3600 which means that additional information is required to be able to determine if additional employees are required to sustain the increasing activities. The trend is true all through to the month of August. With the additional information that will be provided, Direct Materials price variance and the direct labor rate variance would be determined, consequently the direct labor efficiency variance would also be computed as a firm basis of sustaining the manufacturing activities with additional support employees.

The difference between the expenses that should have been incurred and the actual expenses made is defined as variance.

In the process of carrying out these expenses, some of the variance turn out to be favorable (F) and others unfavorable (U).

The situation where the budgeted fixed overhead cost is more than the actual expenditure results in a favorable (F) and vice versa for the unfavorable (U) variance.

There is a linear interrelationship between changes in activities and the total variable costs.

The Honey Bear Confections Variable Overhead performance data presented for the actual level of activities, the flexible and actual cost should be compared and not planned level

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