P 6. Plastic Products, LLC, manufactures plastic beverage bottles. The division that manufactures water bottles for the North American market has two plants that operate 24 hours a day, 365 days a year. The plants are evaluated as cost centers. Small tools and supplies are considered variable overhead. Depreciation and rent are considered fixed overhead. The master budget for a plant and the operating results of the two North American plants, North and South, are as follows:

Required 1. Prepare a performance report for the North plant. Include a flexible budget and variance analysis.
2. Prepare a performance report for the South plant. Include a flexible budget and variance analysis.
3. Compare the two plants, and comment on their performance.
4. Explain why a flexible budget should be prepared.
Traditional and Variable Costing Income Statements

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Master North South Budget Actual Actual Center costs Plastic pellets ($0.009) Caps ($0.004) $4,500,000 $3,880,000 $5,500,000 2,000,000 1,990,000 2,000,000 Direct labor ($0.002) 1,000,000 865,000 1,240,000 Small tools and supplies ($0.0005) 250,000 198,000 280,000 Depreciation and rent 450,000 440,000 480,000 Total cost $8,200,000 $7,373,000 $9,500,000