At the end of 2008, Cyril Fedako, CFO for Fedako Products, received a report comparing budgeted and actual production costs for the company’s plant in Forest Lake, Minnesota:

His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of 50,000 units. The Forest Lake plant actually produced 55,000 units in 2008.

Required
a. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which costs would you expect to remain relatively constant?
b. Cyril is extremely busy—the company has six other plants. Therefore, he cannot spend time investigating every departure from the budget. With this in mind, which cost(s) should Cyril concentrate on in his investigation of budget differences?

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Manufacturing Costs Forest Lake Plant Budget versus Actual 2008 Difference Budget Actual (Actual minus Budget) Materials $3,000,000 $3,300,000 $300,000 Direct labor 2,100,000 2,300,000 200,000 Supervisory salaries 375,000 400,000 25,000 Utilities 75,000 85,000 10,000 Machine maintenance 250,000 280,000 30,000 Depreciation of building 50,000 50,000 -0- Depreciation of equipment 200,000 205,000 5,000 Janitorial 120,000 135,000 15,000 Total $6,170,000 $6,755,000 $585,000