(Cost control evaluation) The Jim Haslett Concrete Company makes precast concrete steps for use with manufactured housing. The company had the following 2007 budget based on expected production of 3,200 units:

The plant manager, Leslie Martz, whose annual bonus includes (among other factors) 20 percent of the net favorable cost variances, states that she saved the company $1,925 [($61,15 - $60.60) X 3,500], She has instructed the plant cost accountant to prepare a detailed report to be sent to corpo¬ rate headquarters comparing each component’s actual per-unit cost with the per-unit amounts in the preceding annual budget to prove the $1,925 cost savings.

a. Is the actual-to-budget comparison proposed by Martz appropriate? If her comparison is not appropriate, prepare a more appropriate comparison.

b. How would you, as the plant cost accountant, react if Martz insisted on her comparison? Suggest what alternatives are available to you.LO.1

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Standard Cost Amount Budgeted Direct material $22.00 $ 70,400 Direct labor 12.00 38,400 Variable overhead Indirect material 4.20 13,440 Indirect labor 1.75 5,600 Utilities 1.00 3,200 Fixed overhead Supervisory salaries 40,000 Depreciation 15,000 Insurance 9,640 Total $195,680 Cost per unit ==== $195,680 3,200 = $61.15