Ex. 189

Data concerning manufacturing overhead for La Guancha Audio are presented below. The packaging department is a cost center.

An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the packaging; however, only 40% of supervisory costs are controllable at the department level. The flexible budget formula and the cost and activity for the month of August while operating at 1,600 direct labor hours follows:

FlexibleBudgetActual August Activity

Variable

Indirect materials$2.00 $3,000

Indirect labor3.00 4,500

Factory supplies0.50 750

Fixed

Depreciation$7,000 15,000

Supervision20,000 7,600

Property taxes 2,000 12,000

Total costs $29,000 $108,700

Instructions

a.Prepare the responsibility reports for the packaging department for August.

b.Comment on the manager's performance in controlling costs during the two month period.