(Flexible budget; variances; cost control) The Birmingham plant of Katz Corp. prepared the following flexible overhead budget for three levels of ac¬ tivity within the plant’s relevant range.

After discussion with the home office, the plant expected to produce 16,000 units of its single product during 2007. However, demand for the product was exceptionally strong, and actual production for 2007 was 17,600 units. Actual variable and fixed overhead costs incurred in producing the 17,600 units were $69,000 and $32,800, respectively.
The production manager was upset because the company planned to in¬ cur $96,000 of costs and actual costs were $101,800. Prepare a memo to the production manager regarding the following questions.

a. Should the $101,800 actual cost be compared to the $96,000 expected cost for control purposes? Explain the rationale for your answer.

b. Analyze the costs and explain where the company did well or poorly in controlling its costs.LO1.

Transcribed Image Text:

12,000 Units Variable overhead $48,000 Fixed overhead 32,000 32,000 Total overhead $80,000 $96,000 16,000 Units $64,000 20,000 Units $ 80,000 32,000 $112,000