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Problem 12.25 Activity Flexible Budgeting, Performance Report, Volume Variance

Novo, Inc., wants to develop an activity flexible budget for the activity of moving materials. Novo uses eight forklifts to move materials from receiving to stores. The forklifts are also used to move materials from stores to the production area. The forklifts are obtained through an operating lease that costs $18,000 per year per forklift. Novo employs 25 forklift operators who receive an average salary of $50,000 per year, including benefits. Each move requires the use of a crate. The crates are used to store the parts and are emptied only when used in production. Crates are disposed of after one cycle (two moves), where a cycle is defined as a move from receiving to stores to production. Each crate costs $1.80. Fuel for a forklift costs $3.60 per gallon. A gallon of gas is used every 20 moves. Forklifts can make three moves per hour and are available for 280 days per year, 24 hours per day (the remaining time is downtime for various reasons). Each operator works 40 hours per week and 50 weeks per year.

Required:

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1. Prepare a flexible budget for the activity of moving materials, using the number of cycles as the activity driver. If required, round your answers to the nearest cent.

Novo, Inc. Flexible Budget

Formula

Formula

Resource

Fixed

Variable

$

$

Total

$

$

2. Calculate the activity capacity for moving materials. cycles

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Suppose Novo works at 80 percent of activity capacity and incurs the following costs:

Prepare the budget for the 80 percent level for the moving materials activity. If required, round your answers to the nearest cent.

Novo, Inc.

Budget for the 80 percent level

Formula

Formula

Resource

Fixed

Variable

60,000 Cycles (Activity Output)

$

$

$

Total

$

$

$

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Prepare a performance report for the moving materials activity. If an amount is zero, enter "0". In the last column of the performance report, select the variance -- U (Unfavorable), NA (Not Applicable), or F (Favorable).

Novo, Inc.

Performance Report

For the Year 20XX

Resource

Actual Costs

Budgeted Costs

Budget Variance

F, NA or U

$

$

$

Total

$

$

$

3. Calculate the amount of the volume variance for moving materials. $

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4. Suppose that a redesign of the plant layout reduces the demand for moving materials to one-third of the original capacity. What is the budgeted cost for this new activity level? When making your calculations, round the number of required operators and the number of required forklifts to the next higher number (for example, a computed value of 6.2 rounds to 7).

Budgeted Cost for New Activity Level

Formula

Resource

Fixed

Variable

25,000 Cycles (Activity Output)

$

$

$

Total

$

$

$

Has activity performance improved?

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