(Cost control evaluation) The Costa Mesa Concrete Company makes precast con crete steps for use with manufactured...
Question:
(Cost control evaluation) The Costa Mesa Concrete Company makes precast con¬ crete steps for use with manufactured housing. The plant had the following 1996 budget based on expected production of 3,200 units:
Actual production for 1996 was 3,500 units, and actual costs for the year were as follows:
The plant manager, John Wessly, whose annual bonus includes (among other factors) 20 percent of the net favorable cost variances, states that he saved the company $1,925 [($61.15 — $60.60) X 3,500]. He has instructed the plant cost accountant to prepare a detailed report to be sent to corporate headquarters comparing each component’s actual per-unit cost with the per-unit amounts set forth above in the annual budget to prove the $1,925 cost savings.
a. Is the actual-to-budget comparison proposed by Wessly an appropriate one? If Wessly’s comparison is not appropriate, prepare a more appropriate comparison.
b. How would you, as the plant cost accountant, react if Wessly insisted on his comparison? Suggest what alternatives are available to you.LO1
Step by Step Answer:
Cost Accounting Traditions And Innovations
ISBN: 9780538880473
3rd Edition
Authors: Jesse T. Barfield, Cecily A. Raiborn, Michael R. Kinney