Standard pine benches are assembled and packed in the bench assembly department of Furniture Manufacture Ltd. The department is treated as a cost centre. Control reports prepared every month consist of a statement comparing actual costs incurred in the department with the level of costs which was budgeted at the start of the month.

For the month of June Year 6 the following control report was produced, and received favourable comment from the directors of the company.

Bench Assembly Department

Control Report for June Year 6

Due to a power failure, the level of production achieved was only 75% of that expected when the budget was prepared. No adjustment has been made to the original budget because the departmental manager claims that the power failure which caused the loss of production was beyond his control.

Required

Prepare a memorandum to the directors of the company:

1. Explaining the weaknesses in the existing form of control report.

2. Presenting the control report in such a way as to give a more meaningful analysis of the costs.

3. Assessing the performance of the Bench Assembly Department during the month.

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Budgeted cost Actual cost Variance Fixed Variable Total £ Direct labour 36,000 36,000 30,000 6,000 (F) Indirect labour 6,000 8,000 14,000 14,000 500 (F) 6,000 (F) 2,000 (F) 6,000 (A) 75,000 10,000 (F) 15,000 5,000 (F) Indirect materials 4,000 4,000 3,500 3,000 15,000 9,000 3,000 Power 12,000 Maintenance materials 5,000 5,000 Maintenance labour 5,000 4,000 9,000 15,000 Depreciation 85,000 85,000 Production overhead 20,000 20,000 Note: (F) = favourable; (A) = adverse. %3D