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Let's prepare an appropriate performance report for the manufacturing department, considering the budgeted costs, actual costs, and flexed budget costs to show the variances. This is achieved by comparing the actual costs to the flexed budget, given the actual production of 25,200 units.
To begin with, let's list the given data:
- Original Budget (for 21,000 units):
- Direct materials: \$338,100
- Direct labor: \$281,400
- Variable overhead: \$119,700
- Fixed overhead: \$74,000
- Total: \$813,200
- Actual Costs (for 25,200 units):
- Direct materials: \$402,500
- Direct labor: \$335,300
- Variable overhead: \$152,600
- Fixed overhead: \$81,000
- Total: \$971,400
We are required to compute the flexed budget for the actual production of 25,200 units by scaling the variable costs (direct materials, direct labor, and variable overhead) to the actual production level. The fixed overhead does not change with production level:
1. Direct Materials (Flexed Budget)
[tex]\[ \frac{338,100 \times 25,200}{21,000} = 405,720.0 \][/tex]
2. Direct Labor (Flexed Budget)
[tex]\[ \frac{281,400 \times 25,200}{21,000} = 337,680.0 \][/tex]
3. Variable Overhead (Flexed Budget)
[tex]\[ \frac{119,700 \times 25,200}{21,000} = 143,640.0 \][/tex]
4. Fixed Overhead (Flexed Budget)
Fixed Overhead remains the same as fixed costs do not change with production levels: \$74,000
5. Total Flexed Budget
[tex]\[ 405,720.0 + 337,680.0 + 143,640.0 + 74,000 = 961,040.0 \][/tex]
Next, we now calculate the variances for each cost component:
- Direct Materials Variance
[tex]\[ 402,500 - 405,720.0 = -3,220.0 \][/tex]
- Direct Labor Variance
[tex]\[ 335,300 - 337,680.0 = -2,380.0 \][/tex]
- Variable Overhead Variance
[tex]\[ 152,600 - 143,640.0 = 8,960.0 \][/tex]
- Fixed Overhead Variance
[tex]\[ 81,000 - 74,000 = 7,000 \][/tex]
- Total Variance
[tex]\[ -3,220.0 - 2,380.0 + 8,960.0 + 7,000 = 10,360.0 \][/tex]
Now, we determine whether each variance is favorable (F) or unfavorable (U):
- Direct Materials Effect:
Since the variance is negative, it is favorable (F).
- Direct Labor Effect:
Since the variance is negative, it is favorable (F).
- Variable Overhead Effect:
Since the variance is positive, it is unfavorable (U).
- Fixed Overhead Effect:
Since the variance is positive, it is unfavorable (U).
- Total Effect:
Since the overall variance is positive, it is unfavorable (U).
Here is the completed performance report:
[tex]\[ \begin{array}{|c|c|c|c|c|c|c|} \hline \text{Item} & & \text{Original Budget} & \text{Flexed Budget} & \text{Actual Cost} & \text{Variance} & \text{Effect} \\ \hline \text{Direct materials} & \$ & 338,100 & 405,720.0 & 402,500 & -3,220.0 & \text{F} \\ \hline \text{Direct labor} & & 281,400 & 337,680.0 & 335,300 & -2,380.0 & \text{F} \\ \hline \text{Variable overhead} & & 119,700 & 143,640.0 & 152,600 & 8,960.0 & \text{U} \\ \hline \text{Fixed overhead} & & 74,000 & 74,000 & 81,000 & 7,000 & \text{U} \\ \hline \text{Total} & \$ & 813,200 & 961,040.0 & 971,400 & 10,360.0 & \text{U} \\ \hline \end{array} \][/tex]
This performance report shows how well the manufacturing department controlled its costs when producing more units than originally budgeted. The favorable and unfavorable variances indicate where the company saved money and where it spent more than expected.
To begin with, let's list the given data:
- Original Budget (for 21,000 units):
- Direct materials: \$338,100
- Direct labor: \$281,400
- Variable overhead: \$119,700
- Fixed overhead: \$74,000
- Total: \$813,200
- Actual Costs (for 25,200 units):
- Direct materials: \$402,500
- Direct labor: \$335,300
- Variable overhead: \$152,600
- Fixed overhead: \$81,000
- Total: \$971,400
We are required to compute the flexed budget for the actual production of 25,200 units by scaling the variable costs (direct materials, direct labor, and variable overhead) to the actual production level. The fixed overhead does not change with production level:
1. Direct Materials (Flexed Budget)
[tex]\[ \frac{338,100 \times 25,200}{21,000} = 405,720.0 \][/tex]
2. Direct Labor (Flexed Budget)
[tex]\[ \frac{281,400 \times 25,200}{21,000} = 337,680.0 \][/tex]
3. Variable Overhead (Flexed Budget)
[tex]\[ \frac{119,700 \times 25,200}{21,000} = 143,640.0 \][/tex]
4. Fixed Overhead (Flexed Budget)
Fixed Overhead remains the same as fixed costs do not change with production levels: \$74,000
5. Total Flexed Budget
[tex]\[ 405,720.0 + 337,680.0 + 143,640.0 + 74,000 = 961,040.0 \][/tex]
Next, we now calculate the variances for each cost component:
- Direct Materials Variance
[tex]\[ 402,500 - 405,720.0 = -3,220.0 \][/tex]
- Direct Labor Variance
[tex]\[ 335,300 - 337,680.0 = -2,380.0 \][/tex]
- Variable Overhead Variance
[tex]\[ 152,600 - 143,640.0 = 8,960.0 \][/tex]
- Fixed Overhead Variance
[tex]\[ 81,000 - 74,000 = 7,000 \][/tex]
- Total Variance
[tex]\[ -3,220.0 - 2,380.0 + 8,960.0 + 7,000 = 10,360.0 \][/tex]
Now, we determine whether each variance is favorable (F) or unfavorable (U):
- Direct Materials Effect:
Since the variance is negative, it is favorable (F).
- Direct Labor Effect:
Since the variance is negative, it is favorable (F).
- Variable Overhead Effect:
Since the variance is positive, it is unfavorable (U).
- Fixed Overhead Effect:
Since the variance is positive, it is unfavorable (U).
- Total Effect:
Since the overall variance is positive, it is unfavorable (U).
Here is the completed performance report:
[tex]\[ \begin{array}{|c|c|c|c|c|c|c|} \hline \text{Item} & & \text{Original Budget} & \text{Flexed Budget} & \text{Actual Cost} & \text{Variance} & \text{Effect} \\ \hline \text{Direct materials} & \$ & 338,100 & 405,720.0 & 402,500 & -3,220.0 & \text{F} \\ \hline \text{Direct labor} & & 281,400 & 337,680.0 & 335,300 & -2,380.0 & \text{F} \\ \hline \text{Variable overhead} & & 119,700 & 143,640.0 & 152,600 & 8,960.0 & \text{U} \\ \hline \text{Fixed overhead} & & 74,000 & 74,000 & 81,000 & 7,000 & \text{U} \\ \hline \text{Total} & \$ & 813,200 & 961,040.0 & 971,400 & 10,360.0 & \text{U} \\ \hline \end{array} \][/tex]
This performance report shows how well the manufacturing department controlled its costs when producing more units than originally budgeted. The favorable and unfavorable variances indicate where the company saved money and where it spent more than expected.
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