Manufacturing Performance
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Complete the following exercise: 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
Planning Budget
Actual Results (1st item listed under each header)
Variances (2nd item listed)
Machine-hours
35,000
38,000
Direct labor wages
$80,500
$86,100
$5,600
U
Supplies
21,000
23,100
2,100
U
Maintenance
134,000
137,300
3,300
U
Utilities
15,200
15,700
500
U
Supervision
38,000
38,000
0
Depreciation
80,000
80,000
0
Total
$368,700
$380,200
"I just can't understand all the red ink," 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 $92,000; the fixed component of the budgeted utilities cost is $11,700.
Evaluate the company's cost control report and explain why the variances were all unfavorable.
Prepare a performance report that will help Mr. Weston's superiors assess how well costs were controlled in the Machining Department.
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Solution Summary
This solution analyzes the performance of a manufacturing operation and utilizes a flex budget.
Solution Preview
The reason that all the variances are unfavorable is that the actual number of machine hours (38,000) is higher than the planned budget (35,000). This causes operations to incur more variable and mixed costs than ...
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