Performance Analysis Report Table I: Budgeted and Actual costs along with performance analysis. Performance Report, May 2019 (F=Favorable, U=Unfavorable) Budget Actual Variance Units 18,000 14.000 4,000 Sales Tk864,000 Tk686,000 TK178,00OU Variable manufactu TK 85.400 ring costs: TK108,000 TK 22,600 F Direct material Direct labor 288,000 246.000 42,000 F Indirect labor 57,600 44.400 13,200 F Idle time 14,400 14.200 200 F Cleanup time 10,800 10.000 800 F Miscellaneous supplies 5.200 4.000 1.200 F Total variable manufacturing TK484,000 TK404.000 TK 80,000 F cost Variable shipping costs TK 28.800 TK 28.000 TK 800 F Total variable costs TK512,800 TK432,000 TK. 80,800 F Contribution margin TK351,200 TK254,000 TK 97,200 U Nonvariable manufacturin g costs: TK 57.600 TK 58,800 TK 1,200 U Supervision Rent 20,000 20.000 Depreciation 60,000 60,000 Other 10.400 10.400 Total non-variable TK148,000 TK149,200 TK1,200 U manufacturing costs Selling and administrative costs 112.000 112.000 Total non-variable and TK260.000 TK261,200 TK 1.200 U programmed costs Operating income (loss) 91.200 (7.200) (98.400) U Farr Ceramics Production Division: A Budgetary Analysis 29 A look at the performance report affirmed Rahman's most exceedingly awful feelings. Rather than a planned profit of Tk 91,200, the report demonstrated the division made a loss of Tk7,200 in May. Taking into consideration the declining order, he considered an improved trend than demonstrated by the performance report. The factory accountant had connected the accompanying notice to the report: 12-00report: June 6, 12:00 noon Dear Sir Please find attached the performance report for May. The profit figure is not as what we estimated it to be. It is to be noted that other than supervision costs most of the costs are under budget or at par almost. The unfavorable variance of costs associated with factory supervision was achieved by controlling other costs. . Work in Progress and finished goods inventory at the beginning and end of the month are zero. Per unit standard costs used in budgeting this year were: Direct material Tk 6 Direct labor Tk 16 It requires 130 grams (0.13 kg) of euro fine porcelain and 0.40 labor hour to produce one cup. Euro porcelain is a specialized material used in the ceramic product. Farr's estimated cost per kg of euro porcelain Taka 46. During the month, Farr purchased 1,820 kg of raw materials at the rate of Taka 46.92 per kg to produce 14.000 cups. All of the materials purchased were used for production. There were no ending raw materials. During the month the company recorded 5,467 direct labor hours at an hourly rate of Taka 45 to produce 14,000 units of products. Budgeted cost of labor per hour was Taka 40 (direct labor cost per Unit 16/0.40 hour required to produce one unit) The falling order quantities from the foreign buyers were a cause for concern for FARR Ceramics and steps were needed to be taken to renegotiate larger, more profitable contracts with the buyer. As the executive pondered this unwanted reduction in demand from the foreign buyer and its long term implications on segment profitability, he was unable to shake off the looming concerns of inefficiencies which have caused a budget control failure and resulted in a net operating loss. At the back of his mind, he was perfectly aware that a bid to cut down on costs to make the segment profitable once more can easily backfire by compromising quality and inability to export consignments on time. This delicate problem left him deep in thought as he gazed out from the window of his office contemplating the optimum solution to this complex dilemma. Independent Business Review, Vol. 12 (1-2), Special Issue, 25-30, 2019 30 CONCLUSION Holistically, this case provides an opportunity to understand multifaceted issues in costing and delivering products and develop the skill set to prepare budgets taking a wide array of operational factors and product-related information into consideration. This case familiarizes students with in-depth investigations of multidimensional constraints and challenges real-life organizations face when preparing, executing and controlling deviations from the budgeted quantities and values. This understanding is of cardinal importance in focusing on developing analytical skills through tackling real-life obstacles derived from case-based contexts