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Flexible Budgets: Performance Report budget to actual

Company A produces fans. Company A plans to manufacture 72,000 evenly over the next quarter at the following costs:

direct materials 1,440,000
direct labor 360,000
variable mfg costs 450,000 and
fixed overhead 900,000.
The last amount includes 72,000 of straight-line depreciation and 108,000 of supervisor salaries.

Shortly after the quarters first month Company A reported:
Direct materials 432,500
dierct labor 110,600
variable mfg costs 152,000
depreciation 24,000
supervisory salary 37,800
other fixed mfg overhead 239,000
total 995,900

The work crew produced 20,000 fans in the first month

Required:
1. The crew supervisor needs to prepare a performance report that compares budgeted and actual cost for the period just ended (will produce a favorable result)

2. 1. The CFO needs to prepare a performance report that compares budgeted and actual cost for the period just ended (will produce an unfavorable result).

The CFO and the supervisor used different performance report calculations and ended with differing results.

Solution Preview

The budgeted costs given are for the quarter and so to get the monthly budgeted costs we have to divide the costs by 3. We get:
Actual costs Budgeted Costs
Direct materials 432,500 480,000
dierct labor 110,600 120,000
variable mfg costs 152,000 150,000
depreciation 24,000 ...

Solution Summary

The solution explains why the budgets prepared by the crew supervisor differ from those prepared by the CFO.

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