Frank Weston, supervisor of the Freemont Corporation’s Machining Department, was visibly upset after being reprimanded for his department’s poor performance over the prior month. The department’s cost control report is given below:
Freemont Corporation–Machining Department
Cost Control Report
For the Month Ended June 30
|Actual Results||Planning Budget||Variances|
|Direct labor wages||$||80,500||$||78,400||$||2,100||U|
“I just can’t understand all of these unfavorable variances,” Weston complained to the supervisor of another department. “When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable.” Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $14,900; the fixed component of the budgeted utilities cost is $13,500.
2. Complete the performance report that will help Mr. Weston’s superiors assess how well costs were controlled in the machining department.
Fixed Cost remain constant within a relevant range irrespective of number of units produced and sold.
|Variable cost per unit||Actual Budget||Flexible Budget||Variance|
|Direct labor wages||78400/40000=1.96||80500||42000*1.96= 82320||1820 F|
|supplies||22800/40000=.57||24800||42000*.57= 23940||860 U|
|maintenance||[21300-14900]/40000= .16||24000||[.16*42000]+14900= 21620||2380 U|
|utilities||[20100-13500]/40000=.165||21700||[.165*42000]+13500= 20430||1270 U|
The direct labor wages are favorable based on actual hours .supplies variance is unfavorable due to stolen out .Also maintenance and utilities cost are less unfavorable than in planning budget.
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