Flexible Budgets and Performance Analysis Freemont Corporation Machining Department Cost Control Report For the Month Ended June 30 Actual Planning Results Budget Variances Machine-hours .......... 38,000 35,000 Direct labor wages .......... Supplies ................... Maintenance ........... Utilities ................ Supervision ........... Depreciation ...... Total .......... $ 86,100 23,100 137,300 15,700 38,000 80,000 $380,200 $ 80,500 21,000 134,000 15,200 38,000 80,000 $368,700 $ 5,600 U 2,100 u 3,300 U 500 U $11,500 U "I just can't understand all of these unfavorable variances," Weston complained to the supervi- sor of another department. "When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable." Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted mainte- nance cost is $92,000; the fixed component of the budgeted utilities cost is $11,700. Required: 1. Evaluate the company's cost control report and explain why the variances were all unfavorable. 2. Using Exhibit 9-8 as your guide, prepare a performance report that will help Mr. Weston's superiors assess how well costs were controlled in the Machining Department. Flexible Budgets and Performance Analysis 423 EXHIBIT 9-8 Performance Report Combining Activity Variances with Revenue and Spending Variances Rick's Hairstyling Flexible Budget Performance Report For the Month Ended March 31 Revenue and Spending Variances (1)-(2) Actual Results (2) Flexible Budget 1,100 $198,000 Activity Variances (2)-(3) (3) Planning Budget 1,100 $194,200 1,000 $180,000 $3,800 U $18,000 F Client-visits ........ ......... Expenses: Wages and salaries ($65,000 + $37.00q) ..... Hairstyling supplies ($1.50q) Client gratuities ($4.10q) ............ Electricity ($1,500 + $0.10q) ......... Rent ($28,500).......... Liability insurance ($2,800).. Employee health insurance ($21,300) Miscellaneous ($1,200 + $0.20q).... Total expense Net operating income ..... 1,200 U 30 F 2,360 U 60 F 3,700 U 150 U 410 U 10 U 106,900 1,620 6,870 1,550 28,500 2,800 22,600 2,130 172,970 $ 21,230 105,700 1,650 4,510 1,610 28,500 2,800 21,300 1,420 167,490 $ 30,510 102,000 1,500 4,100 1,600 28,500 2,800 21,300 1,400 163,200 $ 16,800 1,300 U 710 U 5,480 U $9,280 U 20 U 4,290 U $13,710 F Required: 1. Evaluate the company's cost control report and explain why the variances were all unfavorable. 2. Using Exhibit 9-8 as your guide, prepare a performance report that will help Mr. Weston's superiors assess how well costs were controlled in the Machining Department
