Chapter 1, Problem 48P

a.

To determine

Prepare a statement that compares the budgeted and actual costs for September.

Explanation of Solution

Budgeted costs: The costs which are pre-determined at the beginning of the year are termed as the budgeted costs. These costs are considered as standard during the year while performing business activities.

Actual costs: The costs which are actually incurred during the year are termed as the actual costs. These costs are the actual figure of costs for the particular period.

The statement that compares the budgeted and actual costs for September is as follows:

Company AM
Budgeted versus Actual Costs
For the Month Ending November 30
	Actual	Budget	Difference
	(September)	(September)
Ingredients:
Flour	$4,950	$4,875	$75
Butter	$4,600	$4,375	$225
Oil	$2,030	$2,125	$ (95)
Fruits	$1,550	$1,625	$ (75)
Nuts	$1,200	$1,125	$75
Chocolate	$1,030	$1,000	$30
Other	$460	$500	$ (40)
Total ingredients	$15,820	$15,625	$195
Labor
Channel manager	$5,000	$5,000	-
Other	$14,120	$13,910	$210
Utilities	$2,400	$2,400	-
Rent	$3,600	$3,600	-
Marketing	$200	$200	-
Total cost of bakery	41,140	40,735	$405
Revenues	68,000	67,860	140

Table (1)

Working note 1:

Compute the budgeted cost of flour for November:

$\begin{array}{c}\text{Cost}\text{of}\text{flour}\text{=}\text{Actual}\text{cost}\text{in November}\times 1.25\\ =\$3,900\times 1.25\\ =\$4,875\end{array}$

Working note 2:

Compute the budgeted cost of butter for November:

$\begin{array}{c}\text{Cost}\text{of}\text{butter}=\text{Actual}\text{cost}\text{in}\text{November}\times 1.25\\ =\$3,500\times 1.25\\ =\$4,375\end{array}$

Working note 3:

Compute the budgeted cost of oil for November:

$\begin{array}{c}\text{Cost}\text{of}\text{oil}=\text{Actual}\text{cost}\text{in}\text{November}\times 1.25\\ =\$1,700\times 1.25\\ =\$2,125\end{array}$

Working note 4:

Compute the budgeted cost of fruit for November:

$\begin{array}{c}\text{Cost}\text{of}\text{fruits}=\text{Actual}\text{cost}\text{in November}\times 1.25\\ =\$1,300\times 1.25\\ =\$1,625\end{array}$

Working note 5:

Compute the budgeted cost of nuts for November:

$\begin{array}{c}\text{Cost}\text{of}\text{nuts}=\text{Actual}\text{cost}\text{in}\text{November}\times 1.25\\ =\$900\times 1.25\\ =\$1,125\end{array}$

Working note 6:

Compute the budgeted costs of chocolate for November:

$\begin{array}{c}\text{Chocolate}=\text{Actual}\text{cost}\text{in}\text{November}\times 1.25\\ =\$800\times 1.25\\ =\$1,000\end{array}$

Working note 7:

Compute the other costs for November:

$\begin{array}{c}\text{Other costs}\text{=}\text{Actual}\text{cost}\text{in}\text{November}\times 1.25\\ =\$400\times 1.25\\ =\$500\end{array}$

Working note 8:

Compute the other labour costs for November:

$\begin{array}{c}\text{Other costs}\text{=}\text{Actual}\text{cost}\text{in}\text{November}\times 1.30\\ =\$10,700\times 1.30\\ =\$13,910\end{array}$

Working note 9:

Compute the revenue for November:

$\begin{array}{c}\text{Revenues in}\text{October}=\text{Revenues}\text{in}\text{August}\times 1.30\\ =\$52,200\times 1.30\\ =\$67,860\end{array}$

b.

To determine

Identify the three cost items that would be investigated to see why actual and budgeted costs are different and explain the reason for choosing those three costs.

Explanation of Solution

The three cost items which would be investigated to see why actual and budgeted costs are different are as follows:

• The cost of butter
• The cost of other labor
• The cost of oil

The three items are having more difference between the budgeted and the actual figures. Thus, these items should be investigated, and the reason for such difference should be observed.