Question

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
Machine-hours		42,000			40,000
Direct labor wages	$	80,500		$	78,400		$	2,100	U
Supplies		24,800			22,800			2,000	U
Maintenance		24,000			21,300			2,700	U
Utilities		21,700			20,100			1,600	U
Supervision		48,000			48,000			0
Depreciation		81,000			81,000			0
Total	$	280,000		$	271,600		$	8,400	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.

Required:

2. Complete the performance report that will help Mr. Weston’s superiors assess how well costs were controlled in the machining department.

Answer 1

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
Machine hours		42000	42000
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
supervision		48000	48000	0
Depreciation		81000	81000	0
Total		280000	277310	2690 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.